Do you ever feel like you have to choose between short-term and long-term financial goals? It can be challenging to save for college for the kids or grandkids, that new roof you’ll need in the next few years, and the legacy you intend to leave.
Fortunately, I can help with that. As a specialist in individualized wealth-management plans, I’ve helped numerous clients map out their financial goals so they can start saving strategically. By putting a few key strategies into place, your money can work as hard for you as you do for it, helping you juggle multiple financial goals. Let’s dig in.
Start with a Financial Deep Dive
Before you start saving for the future, it’s important to get your financial life in order. While maximizing your retirement contributions is a wise move, the boost to your nest egg may not be worth the negative impact of keeping high-interest-rate loans. Not to mention, what if your car breaks down or you or your partner get laid off?
If you want to keep your savings on track, start by making sure you check off these financial tasks:
- Pay off debt. The faster you get rid of high-interest-rate loans, the sooner you can reallocate those funds to other financial goals. Depending on what motivates you, the snowball or avalanche method may be more helpful.
- Establish an emergency fund. We recently dealt with some sewer lines backing up at our home. Thanks to our emergency fund, we were able to take care of the issues without pulling funds from elsewhere. Saving for life’s curveballs allows you to take them in stride instead of getting financially derailed.
- Create a budget. If you aren’t accurately tracking your expenses, how will you know how much you can allocate toward long- and short-term financial goals? Get honest about your spending and see how it lines up with your income.
Categorize Your Goals and Choose How to Invest
Why does it matter whether you’re working toward a short-term financial goal or long-term wealth building? What you’re saving for determines how you should save.
Short-term financial goals are typically categorized as milestones you want to reach within the next five years. This could include saving for a new hot water heater, a down payment on a house, planning for children, or hitting a goal amount in a 529 plan. Since you’ll need to access these funds sooner rather than later, it’s helpful to use a low-risk investment vehicle that allows you to withdraw the funds when you need to.
- High-Yield Savings Accounts are a good option for short-term goals, or in situations where you want the most flexible access to your funds. Some feature over 5% interest, a big jump from an average of .4% interest for traditional savings accounts. Choices vary and may include deposit or balance minimums, monthly fees, or monthly vs. daily compounding interest.
- CDs may generate more interest when compared to high-interest savings accounts. The tradeoff is that your savings will be locked in for a set length of time. If you know when you’ll need to use your savings, they can be a good option.
- Short-term Bonds may offer higher returns than high-yield savings accounts or CDs. They carry some risk but are considered safer than high-yield bonds or stocks. Some may even be tax-free, and they typically reach maturity within 3 years. This is a good option if you can afford to wait and let your savings ride out nominal risk.
Long-term financial goals are suited to investment vehicles with a higher risk tolerance since you’ll have more time to ride out market lows. When saving for retirement, a vacation home, establishing a trust, and other big-ticket goals that you want to reach 5-20 years in the future, you’ll want to use a tax-advantaged savings strategy. And it doesn’t hurt if your savings have the opportunity to compound.
- Traditional and Roth IRAs can both be valuable long-term saving vehicles, depending on your tax strategy. You can learn more about the difference here.
- HSAs can also help you build long-term wealth. While you can only use the funds for qualified medical expenses, utilizing the quadruple tax benefits they offer can help you save more effectively for future medical needs, freeing up the rest of your finances for your goals.
Balance It All
Once you’ve outlined your financial goals and chosen the most effective way to save for them, you can begin to get a clear picture of how long it will take to reach them. Planning to buy a new car? If you know you’ll need it in the next few years, a short-term bond that matures in 2 years could be a beneficial way to save for it. If that bond has a yield of 5.08%, you can calculate how much to invest and when to invest it based on the estimated purchase price of your vehicle.
In the same way, knowing when you want to retire and what you want your retirement to look like will help you determine how much you need, which savings strategy is right for you, and how much to set aside annually.
Budgeting for all of your goals in this way will help you gain a realistic picture of your timeline and reassess where to allocate your money. And you shouldn’t be afraid to adjust your strategy as you go; goals and timelines are meant to fit your and your family’s needs, not the other way around.
If crunching numbers sounds complicated, that’s what I’m here for. I can help you choose a strategy that makes sense for your goals, and when they change, I’ll help you make sure your money is still working for you in the ways it should. Because when your money is working for you, you don’t have to work quite as hard.
If having the guidance of a financial advisor could improve your financial strategy and help you worry less, I’d love to learn how I can help. Click here to get started.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Caviness Wealth Management, LLC, a Registered Investment Advisor and separate entity from LPL Financial.
