You know you’re going to need some extra money at some point.
You know…the washing machine dies. Your car breaks down. Maybe you want to take a vacation, buy a new car or update your wardrobe. And before you know it, you might need money to send kids to college or step into retirement.
Are you saving for short-term & long-term goals?
- On average Americans save 3.4% of their income that goes into a checking account, savings account, investments or retirement accounts.1
- However, saving money is at an all-time low in the U.S.(1)
Here’s the thing…if you’re working hard just to keep up with your day-to-day responsibilities, you can still save money, even if you start small.
Wondering how to make it happen?
Here are 8 smart-money habits to help you save for short-term and long-term goals.
4 short-term saving strategies
Short-term goals typically include immediate needs or those with a timeline of less than five years. These may include:
- Building an emergency fund
- Planning a vacation
- Paying for a wedding
To effectively save for short-term goals:
1. Set clear objectives
Define specific short-term goals and assign each a target amount and timeline. Setting a specific short-term savings goal can help you stay motivated and make smart-money decisions.(9)
Here are a few questions to ask to help you get started:
How much money will you save each month?
What’s it for? (Emergency fund, vacation, special event, etc.)
How many months will it take to reach your short-term savings goal?
Where will you save the money? (Checking, savings, investment account)
2. Set up automatic savings
Let’s say you get paid, take care of all your bills, and have money left over every month.
What happens to the money left over? If you don’t have a savings plan, it’s all-too-easy to spend that money. And then…poof… it’s gone. That ever happen?
An estimated 61% of working adults live paycheck-to-paycheck.2 And while wages and rising costs of inflation may be to blame, it’s still possible to save.
Here’s a really easy way to save money every month:
Set up an automatic withdrawal.
You may be able to set this up through your human resource department or accounting department. Or you can set it up yourself.
When you get paid, a portion of your money goes directly into a savings account. Automating this minimizes the temptation to spend impulsively.
3. Cut discretionary spending
Think you don’t make enough money to save? Before you swear off building a savings account, take a closer look at where your money goes every month.
Current market research shows that discretionary spending on dining out and apparel are up, while people are spending less on fitness, wellness, travel and hospitality.3
Wondering how to cut discretionary spending? Here’s how:
Create a budget
Track your spending habits
Identify areas where you can trim expenses, such as dining out less frequently or reducing subscription services.
Chances are pretty good, you’ll find something you can spend less money on. Then use this money to help you achieve your short-term savings goals.
4. Put your money in a high-yield savings account
Once you have a savings plan in place to put money aside every month, you need to decide where to keep it, such as a:
Checking account
Savings account
Retirement/investment account
Under your mattress
All are viable options based on your goals. But there’s at least one more to consider.
Instead of putting your money into a traditional savings account where the average interest rate is 0.45%, put your money into a high-yield savings account.4
Why? High-yield savings accounts earn up to 10 times more than a traditional savings account. It’s a smart way to maximize returns on your short-term savings.
4 long-term savings strategies
Long-term goals, such as retirement, paying for college, or buying a home require more time to save and smart investment decisions.
Here are four strategies for long-term saving goals:
5. Maximize retirement contributions
Take full advantage of employer-sponsored retirement plans like 401(k)s or IRAs.
The Internal Revenue Service allows you to contribute up to:5
$23,000 for 401(k) or 403(b) plans
$16,000 for SIMPLE plans
Contribute at least enough to receive any employer matching contributions, as this is essentially free money.
6. Diversify investments
Spread your investments across diverse asset classes to mitigate risk and maximize growth potential.
This typically includes a mix of different types of investment assets like:6
- Stocks
- Bonds
- Real estate
- Cryptocurrency
Not sure where to start or how to diversify your investments?
Consider consulting a financial advisor to develop a well-balanced investment portfolio aligned with your long-term objectives and risk tolerance.
7. Stay flexible
Life is unpredictable, so maintain flexibility in your long-term saving approach.
Even though you might have a long-term savings plan or goal, there’s always the possibility that you’ll need to make a change. But that doesn’t have to stop you from getting started.
“We have to start planning,” says certified financial planner Nic Nielsen. “But we don’t necessarily have to have it all figured out.”7
Regularly reassess your goals and adjust your saving and investment strategies as needed to accommodate changing circumstances.
8. Plan for healthcare costs
Factor healthcare expenses into your long-term saving plan, including potential costs associated with aging or unexpected medical emergencies.
Your direct healthcare costs can include:
Insurance
Premiums
Co-pays
Deductibles
Medications
There’s indirect costs to consider, too, like travel expenses to get to appointments and time off work.
How much does healthcare cost? Here’s what you can expect:
$13,493. Average annual healthcare costs for adults under 65.8
$22,356. Average annual healthcare costs for adults 65 and older.9
Other ways to save for healthcare costs: Explore options like health savings accounts or long-term care insurance to help reduce your out-of-pocket costs for some healthcare services.
Build short-term & long-term saving habits
Saving for short-term and long-term goals is a cornerstone of financial wellness and peace of mind. And the sooner you get started, the better.