How to Save for Different Types of Financial Goals

Saving money is one of the most common financial goals. We all have things we want to do, whether we want to pay for a vacation, buy a car or home, or save enough money to retire early. The key is knowing how to save for each of those goals - and how to manage your money if you’re saving for multiple goals at the same time.

Why Is It Important to Have Different Savings Strategies for Different Goals?

Let’s start by talking about why you might need different savings strategies for different financial goals, starting with the obvious. A short-term financial goal, such as saving for a family vacation, may take only a few months. A long-term financial goal such as saving for a 20% down payment on a home or retiring early will take years of planning and financial discipline to achieve.

One way to identify what you need to meet a financial goal is to make sure that you’re setting SMART goals. These are goals that are Specific, Measurable, Attainable, Relevant, and Time-Bound. Goals are easier to stick to and strategize when they meet these criteria.

How Can You Determine How Much Money You Need to Save for a Specific Goal?

Determining how much money you need to meet a goal may require looking at multiple criteria as well as your current financial status. We suggest starting by totaling the money you have on hand and your debt payments.

Pursuing any financial goal, whether it’s a short-term or long-term goal, requires a budget. Budgeting is the cornerstone of personal finance management and financial stability, and we recommend having a budget no matter what your salary may be.

Let’s look at an example of how you might calculate the amount you need to save for the long-term goal of buying a home. If you want to figure out a budget, you can use online calculators to determine how much you can afford to spend. A loan monthly payment calculator could help you back into a loan payment you can afford. From there, you can set a budget and use that to calculate the savings goal for your down payment.

What Are the Best Ways to Save for Short-Term Goals?

Saving for short-term goals means understanding the best way to reach your goal and the specific steps you’ll need to take to get there.

Examples of Short-Term Financial Goals

Short-term goals are ones that we would define as taking between three months and three years to complete. Some people choose to define the short term as less than a year, with one to three years being a medium-term goal and over three years being a long-term goal. Here are some examples of short-term goals.

• Paying off credit card debt
• Creating an emergency fund
• Saving for a family vacation
• Saving for holiday presents
• Saving for a down payment on a car

Depending on your cash flow and existing debt obligations (and other savings goals), these could all be considered short-term goals.

Tips to Save for Short-Term Goals

Here are a few tips that can help you save for short-term goals.

1. Cut back on discretionary spending. You don’t need to take all the fun out of your budget, but you may find that eating out a little less often or making other small sacrifices can accelerate your savings.
2. Automate your savings. One of the best tips we know for short-term saving is to open a dedicated savings account for your goal and automate your savings. That way, your money will be separate and you’ll be able to track your progress easily.
3. Put your savings in a high-yield account. You’re not going to earn huge returns on any savings account, but putting your money into a high-yield savings account or a money market account means you’ll earn higher-than-average dividends or interest on your deposit.

Short-term goals, particularly those that require less than a year to achieve, can be reached with a few simple strategies to accelerate and maximize your savings.

What Are the Best Ways to Save for Long-Term Goals?

Long-term financial goals typically take three to five years (or longer) to achieve. That means they require careful planning. Regardless of the specific objective you’re trying to achieve, long-term goals can be a challenge because you’ve got to stick with your strategy for the long haul.

Examples of Long-Term Financial Goals

Here are a few examples of long-term financial goals that you may want to pursue.

• Building enough retirement savings to retire early
• Saving money to pay for your child’s college education
• Saving for a 20% down payment on a home
• Paying off your student loans

For some people, it may be possible to achieve ambitious goals in a short period of time, but most of us would need years to achieve these long-term goals and we’d need the right financial plan to reach our objectives.

Tips to Save for Long-Term Goals

If you have one or more long-term financial goals, then you’ll need to make smart financial decisions at every step along the way to cross them off your to-do list. Here are some tips that can help you.

1. Break down your goals. After you create your long-term financial goals, take a step back and see if any of them can be broken down into short- or medium-term goals. For example, you might want to save a specific percentage of your paycheck for the next five years and invest that money to maximize your earnings. After that, you might up the percentage and adjust your goal accordingly.
2. Prioritize your goals. It’s possible that some short-term goals might need to be completed before you can move to a long-term goal. An example might be creating an emergency fund with a year’s worth of expenses before you begin saving to buy a house.
3. Let your budget be your guide. It’s always a good idea to review your budget and see what you can do to maximize your savings. For example, take a look at your monthly spending and cut expenses where you can put as much money as possible toward your goal.
4. Be smart about the accounts and investments you choose. A long-term savings goal such as retirement might mean that you’ll work with a financial advisor or a wealth management firm to keep your money working and growing for you.
5. Take advantage of compounding interest. Reaching big goals like retiring early requires investing your money and letting it grow with compounding interest. That may mean working with a financial advisor to help you choose investments and balance your portfolio to maximize your earnings.
6. Revisit your goals and budget regularly. Things change and nobody should think of their budget as being set in stone. Both internal and external forces can impact your budget - you might get a raise or bonus and use it to accelerate your savings. On the flip side, you might find that high inflation doesn’t allow you to set as much aside for long-term goals. 

You’ll need to be persistent and mindful of your finances if you want to stay on track with your long-term goals.

What Tools or Accounts Can Help You Reach Your Financial Goals?

One of the best things you can do for yourself is to find the right tools and accounts to reach your goals. Here are a few examples:

• Budgeting apps can help you create a budget and stick to it. Examples are our Money Management Tool, YNAB, and Goodbudget.
• Saving apps are great if you want a way to automate your savings, such as Acorns and EveryDollar. 
• This is not investment advice, but there are many stock picking services, such as Motley Fool Stock Advisor or Seeking Alpha, that could help you choose investments and track your portfolio.

There are thousands of apps and tools available, so we suggest taking advantage of free trials to see which ones work best for you.

In terms of savings accounts, there are many options to consider as well. Here are some accounts to consider:

• Goal-oriented savings accounts for things like vacation savings or holiday spending
• High-yield savings accounts for both short-term and long-term financial goals
• Money market accounts

Many financial institutions have these accounts. It's easy to open them and automate your savings.

Reach Your Financial Goals with Leaders Credit Union

Whether you have one financial goal or many, it’s important to choose the right financial institution to help you turn your dreams of financial freedom into reality. The tips we’ve included here can help you identify and plan your objectives to maximize your chances of success.

Are you looking for a financial institution that cares as much about your financial success as you do? Leaders Credit Union can help! Learn about our savings accounts or download our free Beginner's Guide to Establishing Savings.