Choosing the Right Savings Goals: Short-Term vs. Long-Term Financial Goals

I bet you have more than one thing you’re striving for, and it all costs money. 

Maybe, like me, you’re aiming to pay down your house while preparing for your kids’ college expenses and also investing enough for a healthy nest egg. 

If you feel like your financial goals are competing against each other, it’s time to prioritize. Yes, you can make progress toward long-term financial goals without sacrificing short-term goals — you just need to plan ahead.  

. . .

How To Set Your Savings Goals

Since most of us don’t have unlimited funds to do what we want, we have to think through our short-term and long-term financial goals and make a plan for how to attain them all. 

Prioritizing is key — you'll need to figure out what you must do first (and by when), and then layer in other financial goals that have more flexible (but just as important) timelines.

Financial goals everyone needs

Though very little in personal finance is absolute, there are a few non-negotiables if you want to have a healthy financial life: 

• Build an emergency fund. Before you can worry about retirement, you should save some money for unexpected bills.
• Pay down high-interest debt. Credit card and other high-interest debts rob you of your earning and saving power. Make a plan to pay off debt so you can begin moving forward financially.

Savings goal calculator

For your other short-term and long-term savings goals, list them all and decide how urgent each one is. 

Not everyone has the same financial goals. Think about what is most important to you. 

A bit of basic math is fine for some savings goals. Simply estimate how much a certain event or expense will cost. Then divide that by the number of months until you need the full amount. This will tell you how much you should save monthly. 

Let’s say you’re taking a trip in two years and expect it to cost $3,000. 

$3,000 ÷ 24 months = $125 per month

If you move that timeline up to one year, double your savings to $250 a month to reach your goal. 

If you’re talking about investments, use this simple investing calculator to determine how much your money will grow over the years.

Short-Term vs. Long-Term Savings Goals

If you need a certain amount of money for an expense within five years, that’s a short-term goal. Think: upcoming vacations, replacements for appliances, or a down payment for a house. 

For short-term financial goals, keep your money in liquid accounts that protect your capital. 

Avoid the stock market where it could lose value, and don’t put it somewhere you can’t pull it out when you need it — such as certificates of deposit (CDs) or retirement accounts with early withdrawal penalties.

Long-term financial goals include retirement and expenses like funding your child’s college education. 

They seem far away, but that’s why you need to start investing as early as possible — it gives your money more time to grow through compound interest and bounce back from losses. 

The definition of short-term also depends on where you are in life. If you’re 61, retirement is a short-term goal, but at 21, it’s one of your long-term financial goals.

READ MORE: How Much You Need to Retire

Financial Goals Examples

Let’s look at some potential financial goals (these apply to most of us in some way). 

Some common short-term savings goals are building an emergency fund, saving for a new car or home renovations, and paying for upcoming vacations. 

Long-term financial goals are typically 10 or more years away.

Short-term goal example #1: Build an emergency fund

Your emergency fund is an important goal. Everyone has unexpected expenses pop up, and you can’t exactly plan when or how. What you can do is be prepared by having the money to pay the surprise vet bill, repair your transmission, or cover a loss of income.

The best place to park the money is in a high-yield savings account that pays interest and is accessible immediately.

For example, the CIT Bank Platinum Savings and the SoFi Checking and Savings Account have some of the highest earning rates out there — and you can withdraw when you need it.

Don’t put your emergency fund in the stock market or a CD. Stocks can lose value, and with CDs, you forfeit part of the interest earned if you withdraw early. 

A minimum of three to six months’ worth of expenses is a great baseline. 

But don’t skip this goal even If saving that much seems impossible. Choose a manageable amount. Even a smaller emergency fund of $500 or $1,000 provides a valuable cushion. 

Short-term goal example #2: Pay off high-interest debt

While paying off debt may not seem like a savings goal, it is — since you can’t save money if you’re spending all your money on bills!

Prioritize paying off high-interest debt like credit cards and private student loans. 

If you’ve got a long repayment plan ahead of you, you could look into tactics like consolidating your credit cards into a personal loan or doing a balance transfer onto a new credit card with a 0% APR intro offer. 

For student loans, you may want to consider refinancing them into a new loan with a cheaper interest rate.

Incorporate your debt payoff plan as part of your overall savings plan, rather than a side goal. Otherwise, you may end up saving in one account, only to lose an equal amount (or more!) in another account.

READ MORE: Should You Pay Off Debt or Invest? A Guide to Help You Prioritize

Short-term goal example #3: Upcoming large expenses

You probably have short-term financial goals that require a big chunk of money in a year or two. Accounts for infrequent big expenses are sometimes called sinking funds. 

For example, we keep a sinking fund for our next car purchase that could be six months out or even two to three years out. 

You might be saving for multiple large expenses:

• Replacement appliances
• Weddings
• A down payment
• Travel or vacation
• Solar panels

You get the idea. These goals can have different endpoints, but you still want to plan so you won’t feel blindsided when a payment comes due. 

High-yield savings accounts are great for these costs, especially if you’re unsure when you’ll need the funds. But if you have a specific length of time (say, a wedding in 18 months), you might choose a CD or money market account if it pays a better rate and fits your timeline. 

@erikakullberg

Savings hacks I wish I knew sooner 🤫 #BoostInfinitePartner

♬ original sound – Money Lawyer Erika

Long-term goal example #1: Retire comfortably and on time

Retirement should be on your mind no matter how old you are because you probably won’t work forever. 

Assuming retirement is at least 10 years off, that’s one of your long-term financial goals. You need to invest, not just save, in accounts designed to grow your money over time. 

If your employer offers a 401(k) or tax-advantaged retirement plan, that’s a great option. Or if you’re like me and don’t work for that type of employer, you can pour retirement contributions into an individual retirement account (IRA) or Roth IRA. 

Some risk is inevitable with long-term investing. Higher risk tends to mean higher returns, but since you have a lot of time on your side, you can ride out temporary losses in the stock market. 

Long-term goal example #2: Children’s education

If you have teens or pre-teens, this expense becomes more of a medium-term financial goal, since it’s five to 10 years away. 

(This statement causes a little panic for me since my oldest has only seven years until high school graduation!)

Consider tax-advantaged plans like the 529 Plan or Coverdell Education Savings Account (Coverdell ESA). But look into the restrictions of what your child can use the funds for before opening this type of account, so you don’t wind up paying penalties for unqualified distributions. 

Long-term goal example #3: Healthcare or long-term care

Not everyone has access to great health insurance, and healthcare only grows more expensive the older you get. 

So, this could be considered a short-term financial goal or a long-term one, because you need to pay for medical expenses all your life. 

Saving while you’re young, working, and most likely in your best health can prepare you for retirement or older years when you’ll need more care. 

A Health Savings Account (HSA) is a good option for healthcare savings. Your contributions and growth are tax-free, and you can use the money for qualified healthcare expenses. 

While you can access the money as needed for medical costs, some people choose to let the money sit and grow in their HSA for as long as possible. This offers even greater tax benefits and helps pad your retirement. 

READ MORE: How To Set Your Investment Goals

FAQs

How do short-term financial goals differ from long-term financial goals?

Short-term financial goals are going to hit sooner — you’ll need to fund them in less than five years or so. Long-term financial goals are 10 years or more away. (Between five and 10 years, you might call them medium-term financial goals.)

The way you save for each is different. Short-term goals require saving in accounts that are easy to access without penalty. Long-term goals can be good for more aggressive investing. 

What is a good savings goal?

The definition of a good savings goal depends on you! Decide how much you’ll need (be as specific as possible) and when you’ll need it. Then use a savings goal calculator to make a plan. 

That said, having three to six months of expenses in an emergency fund is a good savings goal for everyone. Saving for a comfortable retirement is also fairly universal, though the amount needed isn’t the same for everyone. 

TL;DR

While paying your bills and getting out of debt are important, you should also think about various savings and financial milestones — both short-term and long-term.

Break down the total amount needed by the number of months or years you have to accumulate it. Approaching goals with this kind of strategic planning will help you feel more financially stable, no matter what point you’re at in life.

For more budgeting and savings advice, check out these episodes of the Erika Taught Me podcast:

• How To Budget for Beginners
• How To Set Your Kids Up Financially
• 10 Steps Towards Financial Wholeness

. . .