Short-term vs. long-term goals: Best savings strategies to use for each

The importance of saving is stressed often, but saving money should be deliberate, too. How you save, and how much you save, will depend on what types of goals you’re saving for. Those goals will certainly change over the course of your life, but the strategies you learn will not.

Generally speaking, there are two kinds of savings goals: short- and long-term goals. Short-term goals are those that you expect to achieve within a few years, while long-term goals are usually at least five years out.

Here are the best ways to save for each kind of goal.

What are short-term and long-term goals?

Short-term goals are typically achieved within six months and five years. They may have more specific deadlines than long-term goals. These goals include vacations, large retail purchases and recurring payments.

When setting short-term goals, make sure you have a plan that is specific and attainable. It’s important to plan ahead — even for something like buying a bike — so you aren’t left scrambling to make up for the sudden dent in your finances.

Long-term goals, on the other hand, are usually achieved after five years or more. They include things like retirement and paying off a mortgage. Long-term goals may not be as specific, and the timeline of the goal might be somewhat more flexible, but it’s still important to plan for these goals so they don’t end up getting neglected.

Additionally, because of the span of long-term goals, it’s important to revisit these goals at periodic intervals throughout your life. As changes in your life take place, such as getting a new job or starting a family, your goals might need some modification, and your savings plan will need to match that.

Examples of short-term and long-term goals

How to save for short-term financial goals

There are many different kinds of short-term goals that may require different strategies. It’s important to find a strategy that works best for the amount you need to save and how long you’re saving for that goal.

1. Find an accessible, high-yield account

Putting your savings in the right account is one of the most important strategies for saving. Doing so creates a buffer against spending your saved money, helps you build your wealth with a high yield and can serve as a reminder of your savings progress.

When it comes to short-term goals, you’ll want an account that can easily be accessed when you’re ready to withdraw the money. A certificate of deposit (CD) is a good option for individual goals since it has a set maturity date that you can align with your goal. For example, if you want to go on vacation a year from now, a one-year CD might be a good option.

However, if you’re looking for an account that you can put savings in for multiple short-term goals over time, you might want something with more flexibility than a CD, since you’ll usually be charged a penalty for withdrawing money from a CD before its term expires.

Some options for storing savings for short-term goals include:

2. Stick to a regular savings plan

Make sure to create a realistic savings plan for achieving your goal on time. This plan can be part of a monthly budget, in which a certain amount of your income is set aside for savings.

Suppose you want to save $3,600 to put a down payment on a car in a year. You’ll need to save enough each month to reach that goal over 12 months, which means you’d need to save $300 each month.

One tip to help ensure that you stick to your savings plan is putting money into savings as soon as you get your paycheck. Then, you won’t be tempted to spend that money. For the example outlined above, you’d want to transfer $150 into a savings account for every paycheck, assuming that the pay schedule is bi-weekly.

3. Set up automatic savings

Automatic savings features are an advancement in financial technology that can make it easier to save. There are many mobile banking apps as well as third-party fintech apps that can automate your savings.

In most cases, the app user sets a percentage or dollar amount of how much they want to save each month, and that amount is automatically transferred into a connected savings account with each paycheck. Some offerings come with predictive tools that determine how much you can save based on income, spending habits and savings goals.

A few savings apps that are worth exploring include:

• Oportun (formerly Digit): This app predicts how much you’re able to save each month.
• Qapital: With Qapital, you can set up savings rules. For example, a rule could be that you have to save a certain amount every time you buy new clothes.
• Chime: Chime comes with its own savings account and automatically moves a certain percentage of your direct deposit into savings.

4. Cut back on expenses

Perhaps the simplest rule to saving is to spend less. That may be easier said than done, though.

For short-term goals, look for areas of your budget where you can temporarily cut back on spending. Preparing your meals at home, for example, is something you could do for a few months to reduce how much you spend on food.

Cutting back on spending doesn’t mean you have to completely eliminate certain items from your budget. Rather, it’s important to find where you can make small changes across several categories.

Some ways to cut back on expenses include:

• Reduce utility bills by lowering the thermostat a few degrees in the winter (or lowering the air conditioning in the summer) and unplugging appliances when they’re not in use.
• Work on your home-cooking skills to save on eating out or ordering in.
• Cancel the subscription to that streaming service you rarely use or find a way to split it with some friends.
• Make a shopping list and stick to it, so that you’re less likely to give in to impulse purchases.
• Walk or ride a bicycle when going places to save on gasoline costs.

How to save for long-term financial goals

The savings strategies for long-term goals are focused on sustaining a savings plan over a longer period of time.

1. Invest in a retirement account

A long-term goal common to nearly everyone is retirement. Bankrate’s recent Retirement Savings survey found that over half of American workers are behind on retirement savings.

The earlier you open a retirement account, the easier it will be to reach your retirement savings goals in the long run. There are generally two retirement account options: an IRA and a 401(k). With an IRA, you can choose between a traditional or Roth IRA. 401(k) plans are employer-sponsored, so contributions are deducted directly from your paycheck and often matched by the employer.

Fidelity suggests that you should aim to save 15 percent of your pre-tax income for retirement each year. However, that’s if you start saving at 25 years old. Depending on your current age and what age you want to retire, you may need to put aside more or less for retirement in your savings budget.

2. Consider opening separate accounts for other long-term goals

While it’s not necessary to keep short-term and long-term savings in separate accounts (besides retirement accounts), it might be useful depending on what goals you’re striving toward. It can be difficult to keep track of savings progress for long-term goals when it’s kept in the same account as other savings.

For example, if one of your long-term savings goals is being able to pay for your child to go to college, it would be helpful to have a specific college fund account. You could even open this account under the child’s name while contributing to it regularly.

Another option for keeping track of savings for different goals is to download an app that tracks your savings progress for you. Mint, for example, allows users to set specific savings goals, which they can portion out and track in the app.

3. Don’t let short-term goals overshadow the long-term ones

It might be easier to save for short-term goals — because those goals are nearer, they may seem more tangible. However, long-term goals often align with significant life events, and it’s important not to overlook them.

One way to make sure these longer-term goals aren’t forgotten is to regularly check in with your budget. A budget can serve as a reminder of what your various aspirations are as well as keep your savings and spending priorities in check.

It’s helpful to remember that saving for long-term goals isn’t about making big sacrifices to prepare for the future; it’s about saving little by little so that you can feel fulfilled over time. You can still enjoy yourself now, while also aspiring toward higher goals.

4. Explore passive income opportunities

Part of a long-term savings strategy may mean finding new ways to build your wealth. One way to do that is by pursuing passive income opportunities.

Passive income is a way to make money other than by working for an employer or contractor. In most cases, you put in a lot of the work upfront to establish a business or create something sellable, and then hope to collect the cash flow from that endeavor without having to consistently, actively participate in it. That extra income can pad your retirement or other long-term savings.

Some common ways of making passive income include:

• Investing in dividend stocks
• Writing a book
• Creating a bond ladder
• Selling homemade items online

5. Build your career

When it comes to long-term planning, establishing and ascending in a career is not only financially rewarding, but also personally fulfilling. Focusing on a long-term career strategy means that you can work your way up in an occupation, doing something you enjoy.

In some cases, that might mean finding a new employer, if they have better potential for long-term career growth. Reflect on what you desire out of a career and what opportunities are available to you. Finding an occupation that is both satisfying and enriching will motivate you to advance in that career and reap greater benefits in the long term.

How financial goals might change with age

As you change with age, so will your financial goals. The goals of a young worker just out of college with student loans and no children will be very different from those of someone with a mortgage and children or a retiree.

Financial goals in your 20s may include:

• Building an emergency fund
• Contributing to an employer-sponsored retirement account
• Paying down student debt

Financial goals in your 30s may include: 

• Buying a home
• Growing your family
• Setting aside money for travel, meals out, weddings and other activities

Financial goals in your 40s may include: 

• Increasing investments to retirement accounts
• Saving for a child’s education
• Eliminating debt

Financial goals in your 50s may include:

• Making catch-up contributions to your retirement savings accounts
• Buying long-term care insurance
• Supporting aging family members

Financial goals in your 60s may include: 

• Planning for retirement costs like travel or a new home
• Saving for long-term care
• Setting aside money for heirs

Make sure to regularly assess your savings goals and strategies to ensure they’re still aligned.

Bottom line

Most people will have a mix of short-term and long-term savings goals at any given time, and it’s important to attend to both. While a short-term savings strategy may focus more on establishing a concrete and calculated savings plan, long-term strategies are somewhat more flexible and require consistent reevaluation.

Remember, also, not to neglect having an emergency fund set up. An emergency fund might be part of a short-term savings plan, but it should be something you maintain and build throughout your life, to protect you from sudden expenses along the way of saving for other goals.

–Freelance writer Mallika Mitra contributed to updating this article.