Setting Short-Term, Intermediate-Term, and Long-Term Financial Goals

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Setting Short-Term, Intermediate-Term, and Long-Term Financial Goals

Consider the time element

Consider how important it is to achieve your goals on time. Some goals are so important that not achieving them would be not only disappointing but also disastrous. When a goal must be achieved by a specific date, you must plan conservatively, save more money, and take less investment risk to help ensure against loss. However, if the timing isn’t as important or if you have discretionary assets and can take some investment risk, you might be able to invest more aggressively. Let’s say you needed to save an additional $15,000 in five years to buy the car mentioned above. After five years, you only manage to accumulate $27,000—you’re $3,000 short of your goal. So, it will take you longer to buy the car. Had you invested more aggressively, you might have made the goal, but you might also be worse off. In this case, let your risk tolerance help you determine your time horizon.

Short-term, intermediate-term, and long-term

Goals should be grouped as short-term (three years or fewer), intermediate-term (three to seven years), and long-term (more than seven years). Generally, the longer the time horizon to achieving a goal, the more aggressive you can be in your investment approach. However, you should never exceed your risk comfort level—the amount of risk you can take without abandoning your goal. This is your risk tolerance. If you approach setting financial goals in this way, you will make better financial decisions about setting goals and ways to invest to potentially achieve them.

You should always monitor your goals to be sure they are on track. Set up a way to measure your progress. If you see that you are lagging behind, you may need to make an adjustment in the amount or way you are investing. If you are way ahead, you may want to be more conservative, shorten your time horizon, or add a new goal.