While planning your short-term goals, it is always a good idea to take stock of how these shorter-term plans align with your long-term financial goals. Read more here on how to keep things on track with your short-term financial goals.
Like most people, you probably have some short-term financial goals in mind. Perhaps you’ve got your eye on a new smartphone or vacation package? Or maybe you’re looking at more big-ticket items, like a new house or a new car? In any case, you need to make sure that your short-term financial goals align with your long-term investments.
Let’s dive into the differences between short-term and long-term financial goals—and what actionable strategies you can employ to make those goals work with one another.
What Makes Short-Term Financial Goals Different?
Short-term financial goals usually come to fruition between three months to a year. You likely have surplus cash on hand and don’t want it sitting in a low/no-interest savings or checking account. Instead, you might invest those excess funds in low-risk stocks, bonds, or any other liquid investment vehicle.
Liquidity is the most crucial part of short-term investing, especially when managing surplus funds. You must be able to liquidate those funds quickly to keep cash on hand. Meanwhile, long-term investment goals are only worried about the future—think retirement accounts.
Short-term investments help keep your portfolio grounded. While they offer lower return rates, they maintain high liquidity, meaning you can cash them in any time. If you’ve been eyeing a new car but were a few thousand dollars short for a down payment, short-term investments may get you over that hump by the year’s end. Once you’ve reached your target, you can cash in the stocks or bonds and buy a new car.
Some popular investment vehicles for short-term financial goals include:
- Money Market Accounts
- Certificates of Deposit (CDs)
- Treasuries
- Bond Funds & Municipal Bonds
Where Short- And Long-Term Investments Meet
While short-term financial goals differ from their long-term counterparts, there are ways to make them work for each other. Let’s say one of your long-term goals is to pay off a $100,000 business loan ASAP. You may set several short-term financial goals to build a monthly budget, allowing you to put a little extra towards that loan each month. You can think of short-term investments as the building blocks for your long-term goals.
Short-term goals rely on low-risk and quick turnarounds to grow wealth. On the other hand, long-term goals leave wiggle room for risk and long holding periods. Going against those basic principles may cost you money or diminish your savings opportunities.
When you take more chances to attain your short-term financial goals, you risk losing some (or all) of your initial investment. Now that down payment or new car gets pushed further into the future while you recover. Meanwhile, playing too conservatively with long-term goals causes you to miss earning opportunities.
Keep them in sync by working backward from your long-term goals. For example, if you’re hoping to retire at 60 (a long-term goal), you can set short-term goals during your working years to build your nest. Once those short-term financial goals mature, you can roll the earnings into your long-term retirement accounts (401(k), IRA, Roth IRA) to keep growing.
Short-Term vs Long-Term: Where to Focus?
Now that we’ve clearly defined different financial goals, it’s time to decide which works best for you. While you should ideally focus on both, it’s imperative that you navigate your goals around your day-to-day expenses.
Focus on essentials like food and shelter first. Then move on to other expenses like outstanding loans and credit card debt. Finally, contribute some money to an emergency fund, ideally building three to six months’ worth of wages in case of the unexpected. You’re free to invest the leftover towards your short- and long-term goals.
Ideally, you leverage both short- and long-term investments to meet your goals. Let’s say you’re getting married in two years and want to save money for the wedding and honeymoon—a short-term goal. Invest in a money market account or CD and use that money to pay for those expenses.
It’s also wise to keep more than one long-term account. For example, you may use an IRA or 401(k) to save for retirement. Meanwhile, consider a separate investment account to save for a home in 10 or 15 years.
Let Your Goals Work With One Another
Leveraging short-term financial goals is crucial to long-term success. Make them work for each other by focusing on short-term investments for immediate returns while waiting for long-term investments to mature. Then you can use earnings from short-term investments to bolster long-term accounts.
Ultimately, short and long-term investments meet different needs depending on where you are in life. Younger people may want to leverage short and long-term investments as their careers blossom. They can use those short-term earnings to pay off student loans or save up for a down payment on a car or home. Meanwhile, they’re constantly funding their long-term retirement accounts to meet their goals later in life.
Once they retire and thus don’t need to keep funding their long-term investment vehicles, they can focus more on short-term investing to make the most out of their golden years. Of course, this is all made easier with the help of a skilled wealth advisor.
When speaking with your advisor, ask them:
- Should I invest everything into long-term opportunities, or focus on some short-term financial goals?
- Is this goal a smart goal?
- What’s my timeline for achieving X goal based on market projections?
- When should I pivot my retirement savings towards more low-risk investments?
- Should I keep holding this stock now that it has appreciated?
Make Your Short-Term Goals Work for You
Syncing your short-term financial goals and long-term investments is critical for growing passive wealth. Many people let investment opportunities fall by the wayside in today's busy world. Instead, they can consult with a trusted financial partner, such as Wisconsin Bank & Trust, a division of HTLF Bank, to advise them on best practices for long-term savings.
Get in touch with Wisconsin Bank & Trust, a division of HTLF Bank to speak with an expert financial partner with deep market insight. They’ll help you align your short-term financial goals with your long-term investment strategies today.
Wealth Management does not provide accounting, legal or tax advice. This information discusses general economic and market activity and is presented for informational purposes only and should not be construed as investment advice. Views and opinions expressed herein do not account for any specific investment objective, restrictions, and/or financial circumstances of any specific client. The views and strategies described may not be suitable for all investors. Investors are urged to consult with their financial advisors before buying or selling any securities.
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