Strategy Beginner: Saving for Short, Mid and Long-Term Goals

Introduction to Saving for Short, Mid and Long-Term Goals What Are Short, Mid and Long-Term Goals? Saving For Short-Term Goals Saving For Mid-Term Goals Saving For Long-Term Goals Summary of Saving for Short, Mid and Long-Term Goals
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What Are Short, Mid and Long-Term Goals?

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What Are Short, Mid and Long-Term Goals?

When you are setting financial goals, it makes sense to divide those goals into timeframes. A commonly used time frame for goals is:

  • Short-term: goals that you want to achieve within three years.
  • Mid-term: goals that you want to achieve in three to seven years.
  • Long-term: goals that you want to achieve in more than seven years.

Classifying your goals by these timeframes can provide a framework for setting the specific savings goals that you will need to achieve goals in each of these areas. Here are some examples of each type of goal:

Types of goals

Savings Strategies

Different types of goals require different savings strategies. For example, short-term goals such as saving for a vacation require different savings vehicles than a long-term goal such as saving for retirement. If you are saving for a special vacation, such as an anniversary trip out of the country, or a summer road trip to the beach, you’ll want to use a savings account at a bank, credit union or savings and loan to accumulate savings.

That’s because you don’t want to risk any money that you will need in the next year or two in a longer-term investment such as a stock or bond mutual fund. For a short-term goal, opening a dedicated savings account and placing a specific amount of money in that account every month is an appropriate approach. On the other hand, investing in a mutual fund is just the kind of savings vehicle that is appropriate for a long-term goal such as saving for a college education or retirement.

Determining Goals

In setting up a savings strategy, it’s important to not only decide on your goals but also to categorize them by time horizon. The best way to go about this is to set a number of goals and then classify them by type.

So, if your goals involve setting up an emergency fund, saving for retirement, replacing your furnace, paying off credit card debt and buying a new car, all those would then be placed in different categories. Short-term goals would include paying off credit card debt and setting up an emergency fund, mid-term goals would include buying a new car and replacing your furnace, and the long-term goal would be saving for retirement.

Your goals are likely to change as you grow older and your life situation alters. A younger person may have a long-term goal of saving enough money for a 20 percent down payment on a house, while an older person may already have a home and need to shift the focus to saving for retirement.