How To Balance Budgeting for Both Short-Term and Long-Term Goals, According to Experts
Your financial goals may shift and change over the course of your life, but most people have goals they’d like to achieve in both the short term and the long term. While it may seem out of reach to shoot for both at the same time, it’s possible to strive for both with some conscious, careful planning and prioritizing.
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Financial experts explain the best strategies to keep your eyes on the near term while still going the distance.
Set Clear Goals
It’s difficult to set any kind of goals without planning. Loretta Kilday, a spokesperson for Debt Consolidation Care, recommends you clearly define your short-term and long-term financial objectives before you try to start budgeting or saving for them.
“Short-term goals may include building an emergency fund, paying off high-interest debt or saving for a vacation,” she said. “Long-term goals could be retirement planning, buying a home or funding your children’s education.”
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Pay Off High-Interest Debt
You won’t have much to work with if you’re spending all your money paying on high-interest debt, which actually deepens your debt over time.
Kilday said, “Channel any extra funds towards clearing credit card debt or other high-interest loans to save on interest payments.”
Build an Emergency Fund
Even if you have only a small amount of funds to put aside each month, Kilday said, building an emergency fund that can cover three to six months’ worth of living expenses “will protect you from unexpected financial setbacks and prevent the need to rely on credit during emergencies.”
Use Tax-Advantaged Accounts
If your employer offers a tax-advantaged retirement plan such as a 401(k) or IRA, you definitely want to take advantage. Not only do they offer tax benefits, they help your money grow over time so you can save for retirement, Kilday said. Some employers even offer matching programs, where they will match the amount of money you put in.
Automate Savings
No matter how you organize your financial goals — be they in savings accounts, retirement accounts or other — if you set up automatic transfers to allocate funds to them, you won’t even have to think about saving.
“Automating savings ensures consistency and prevents you from spending the money impulsively,” Kilday explained.
Reevaluate and Adjust
Meeting goals may not just automatically happen without your oversight.
“Regularly review your financial situation and progress towards your goals,” Kilday said. “As your income or expenses change, adjust your budget and savings plan accordingly.”
She pointed out that achieving financial goals takes time and discipline.
“By planning, budgeting and making informed financial decisions,” she said, “you can make progress towards both short-term and long-term objectives, even with limited funds.”
Employ the Bucket Strategy
There are different ways of saving for financial goals that don’t involve tucking money under your mattress, according to Bader Chowdry, CPA, founder and CEO at Insight Accounting.
For short-term goals, he recommends using the bucket strategy.
“Allocate funds into different buckets based on their time horizon and risk tolerance,” Chowdry said. “Short-term buckets can consist of safer, more liquid investments, such as high-yield savings accounts or short-term bonds, while long-term buckets can be invested in more growth-oriented assets.”
Focus on Incremental Progress
When you have limited funds, it’s essential to celebrate incremental progress, Chowdry said.
“Each contribution, no matter how small, brings you closer to your financial goals. Recognize that achieving financial stability and success is a gradual process — and consistency matters.”
Define SMART Goals
When trying to achieve different kinds of goals, you’d do well to set “SMART” goals — an acronym that means Specific, Measurable, Achievable, Relevant and Time-bound.
“Clearly articulate what you want to achieve in the short and long term,” said Percy Grunwald, co-founder of Compare Banks. “For instance, a short-term goal could be paying off $5,000 in credit card debt within a year, while a long-term goal might involve saving $100,000 for retirement in the next 20 years.”
Budget With Precision
Budgeting is definitely more of a science than an art — and it is absolutely possible to create a detailed budget that accounts for every dollar of your income, Grunwald said.
“Differentiate between fixed and variable expenses,” Grunwald said. “Scrutinize discretionary spending and identify areas where you can cut back without compromising your essential needs.”
Implement the 50/30/20 Rule
Another popular financial strategy for those who need more structure, Grunwald said, is to allocate your funds based on the 50/30/20 rule.
“Dedicate 50% to necessities, 30% to discretionary spending and a significant 20% to savings and debt repayment. This structured approach ensures you’re addressing both short-term needs and long-term aspirations.”
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