You work and you earn. You earn and spend and, hopefully, save.
With all the needs every day and the needs of the future, sometimes it’s confusing what savings you have to direct your money in appropriate proportions.
Let this be your basic guide to learning about short-term vs long-term financial goals.
What are short-term financial goals?
Short-time financial goals are considered your immediate expenses. Usually, these are the plans that you intend to achieve for one to two years or a short close-ended period. These are funds you will either spend for a one-time purpose or save on a regular basis to support a specific type of expenditure.
Here are some examples of short-term goals for your finances:
1. Personal goods
In reality, you have this list of personal goods that you look forward to buying when the payday comes. While others call this a luxury, most of the time these are things that will make life more comfortable and convenient for professionals.
2. Monthly rent or personal loans
For those who are working outside their hometown, renting a house or pad means a regular liability. A portion of your salary goes to your rental for that very good sleep at night. A personal loan is also a type of short-term goal that you need to shell out money for.
3. Travel plans
Travel needs a budget, whether it’s a casual one where you want to have some time alone for unwinding or a career-related excursion. In both domestic and overseas travels, you need to plan out your expenses for the commute fare or gasoline/tolls if you have your own car, food, accommodation, souvenir, airfare, foreign services or products, and other miscellaneous fees.
4. Emergency fund
This is a type of fund that most of us easily overlook. Aside from savings, you have to keep an amount of money worth your three to six months of pay—something that can support you to look for another job for the next months without getting into debt. This can also be used during an emergency such as sudden hospitalization or community lockdown during a pandemic.
5. Insurance payment
Insurance is a type of investment that can also save you from unexpected perhaps. Depending on what type of insurance you will get, this will definitely protect your finances in times of accidents, health risks, or death.
6. Credit card debt payments
A credit card is a reserve budget you can borrow from banks to afford products or services. While keeping one can take a lifetime, the monthly payment is a liability you need to fulfill without red flags. Tip: Only swipe amounts that you can pay with your cash on hand.
7. Wedding expenses
The day of marriage is a life-changing event and is commonly celebrated with a banquet. The venue, decorations, souvenirs, and entourage are just a few from the long list of what you need to prepare for financially.
8. Minor home repairs and improvements
Houses are not invulnerable to damages or aging. For safety and comfort, you often spend well to fix the flaking ceilings or renovate the bathroom.
What are long-term goals?
On the other hand, long-term goals require a larger portion of your funds that can run for years (usually exceeding 36 months) because it serves the bigger picture of your finances. These are your investments or resources that can support your needs throughout your life.
Here are a few of these long-term goals for your finances:
1. Finishing a mortgage payment
Owning a home is a great achievement, but it takes plenty of effort, money, and time to possess a house title to your name.
2. Retirement fund
This is everyone’s goal: To have enough money to sustain your needs even when you have resigned from being a work slave.
3. Children’s college tuition savings
While a wedding is a short-term goal, married life is more complex and filled with liabilities. When the time comes, you have to prepare yourself in all aspects, specifically financially, to pay for the college tuition of your children.
4. Business venture
While retirement fund is already a great goal, it’s better that you have other sources of income to not deplete your savings. It’s best that you make money work for you and starting a business is a challenge that really pays well.
What are mid-term goals?
While there short-term and long-term goals, there are those that come in between—or what you call the financial goals in the gray areas. They are achievable longer than the short terms (at an average of 36 months) but whose purpose does not really serve long for the future.
Here are some mid-term goals for your finances
1. Buying a car
A car is a necessity in traveling. It is can be paid at a specific duration of time but can also be replaced before your retirement.
2. Paying off debt
A person can apply for various loans in different timelines, and these can disrupt your more important financial goals.
3. Saving for a down payment.
Be it for a car, house, or franchise business, you will certainly need much more money and time to get this fund.
Short-term goals vs. long-term savings goals
Long- and short-term goals need wise decision-making and strategic placement of your assets. Finding the balance of the two can be difficult along the way because of unforeseen circumstances and your priorities.
What is that particular long-term goal you’re ultimately aiming for? What are the short-term goals achievable for the coming years? What can be hindrances?
There is no standard rule to achieve a balance in your financial goals because of the variables that come in, such as the urgency of a specific goal, your tolerance for risk, and your timeline flexibility. Help from a financial advisor can help you sort out your priorities.
However, once you have determined a clearer picture of your goal including its hierarchy and projected time of completion, consulting a financial may be unnecessary.