Everything You Need to Know About Setting Short, Medium, and Long-Term Goals

Consider this goal-setting primer for now, in a few years and when you’re ready to retire

With a new year on the horizon, now is a great time to set financial goals for 2021 and beyond. It’s an equally good time to review ones you already have in place to make sure they still work for you.

Those of you who regularly read the columns in this space probably already understand that there’s also an easy way to help yourself set and stick to savings plans that fund your financial goals: automate them as much as possible. That way, you never really see the money in your checking account before it’s whisked off to a bucket with big plans for the future.

Sarah Sprague Gerber, founder of Momentum Financial Planning in San Francisco, often talks to her clients about placing money in buckets, or separate accounts, as they plan for short, medium and long-term goals. Bucketing money involves splitting up funds into segments based on when it will be needed: “First, I ask them to determine how much money they can save every month, then we take portions of it to place in different buckets.”

Here are expert tips from two financial planners who work with couples, families and individuals to help them reach their savings goals for the future:

Short term goal: Saving for a vacation

When socking money away that you will want to access in a year(ish) for a vacation, determine how much is needed for the trip, then divide that amount by the number of months before you plan to embark. If a trip will cost $2,400 and you plan to travel in 12 months, you will need to save $200 a month to meet your goal.

Using an FDIC insured savings account or an FDIC money market savings account at a credit union or bank is a good way to save for a short-term goal, says Mark D. Kinsella, a certified financial planner with Family Financial Planning Services LLC, in Wheaton, Illinois. “Be sure to read the fine print, and deposit the required amounts at specified times into the savings account,” he says. Then, when the total amount is saved up, the vacation can be paid for.

Medium term goal: Saving for a home down payment

When saving to make a down payment on a home, a combination of investments may be helpful. An insured savings or money market fund could be the base account, suggests Kinsella, while FDIC insured CD’s are also good tools for this goal as long as they can be used by the time you plan to purchase a home.

Another option is to deposit a portion of the money you are saving into short-term treasuries such as T-Bills. “Treasury notes with maturities that match the date of the house purchase would be helpful,” Kinsella says. “And you won’t suffer any loss if you hold the treasuries until maturity.”

Gerber uses a Housing Goal Calculator Template with clients so they can see all the costs associated with saving for a new home before they take the plunge. It combines both the saving portion for the upfront costs of purchasing a home and also includes the ongoing expenses after buying the house.

Long term goal: Saving for retirement

“Investing for retirement may be the most important endeavor someone undertakes during his or her working years,” Kinsella says. Creating a budget is a great place to start and can be a helpful guide to ensure you continue funneling an appropriate amount for your retirement.

A good rule of thumb is to save 15 percent of your monthly earnings, which can include contributions from your employer. There are also dozens of online calculators to help estimate how much you’ll need to live comfortably in retirement.

Gerber encourages clients to save more for retirement, and spend less on impulse purchases from Amazon, by pointing out how exciting it can be to watch an account balance grow over time. “It’s about transferring the dopamine rush you get from a purchase to achieving your financial goal,” she says. “When you show them how they can do it, it helps build momentum for them to stick to their plan.”

With reporting by Casandra Andrews

Jean Chatzky

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