How to Set Up Long-Term and Short-Term Financial Goals

Introduction

It would be nice to just trust that we’ll have the money we need when we need it. But when it comes to saving up for a large expense or paying down debt, a bit of forethought is required. Real financial progress happens when you make plans with set dates, budgets, and rules to follow.

That said, mapping out the path to monetary success can be overwhelming — especially if your goal is years away — and sticking to it is often another challenge entirely. Luckily, there are tried-and-true methods that financial planning experts have identified for setting financial goals, paying down debt and building up savings, even on a tight budget.

What Does Setting Financial Goals Mean?

Setting goals means deciding what you want to achieve, and defining it in a way that’s SMART: Specific, Measurable, Achievable, Relevant, and Time-Bound.

While goal-setting can be done in any area of life, setting financial goals means looking specifically at where you want to be economically. A SMART financial goal might be something like saving 10% of your income for retirement through your 401(k) for the next 10 years, or putting aside $100 a week for the next two years to build a $10,000 emergency fund. These goals are specific, measurable, likely achievable, completely relevant, and realistically time-bound, so you have a clear idea of what’s involved and when you’ll achieve them.

What To Consider Before Setting Up Financial Goals

Before you set your goals, you need to figure out where you are, where you want to be, and what’s been stopping you from getting there until now.

It’s tough to identify which expenditures or behaviors could be preventing you from achieving your financial goals. But sitting down and making a budget is usually the first step. You need to know how much you have coming in and going out each month, so you know what you’re working with for savings and investments.

If your net result seems low, you can do one of two things: increase your income or decrease your expenses. The former involves negotiating a raise or promotion at your current job, looking for a better position, or finding other ways to bring in money, like starting a side hustle. The latter involves figuring out where you can cut back, like canceling subscriptions and memberships you’re not using, or cooking at home instead of eating out.

What Is the Difference Between Long-Term and Short-Term Financial Goals?

Short-term goals are the ones you plan to achieve relatively quickly. They could take a few months or a few years, but not longer than that. These goals often require making a few sacrifices now to get yourself out of a financial crisis or start building momentum toward long-term savings.

Long-term goals reflect where you want to be in three to five years, or further in the future. Some people make 10-year goals, 25-year goals, or even longer. The younger you are, the further off retirement or making large purchases will typically be, so your goals will likely be longer-term than, say, your parents’ long-term goals.

Types of Long-Term Financial Goals

Long-term financial goals are your plans for the future:

• Buying a house
• Building an emergency fund
• Saving for retirement
• Leaving a legacy
• Paying off student loans
• Saving for a child’s education

Types of Short-Term Financial Goals

Short-term goals can stand on their own, or they could be the steps that help you reach your long-term goals:

• Paying off a credit card
• Starting a savings account
• Beginning to invest
• Negotiating a raise
• Saving for a vacation
• Buying a car
• Donating to charity
• Planning gift purchases

How To Set Up Long-Term and Short-Term Financial Goals for Yourself

Start by figuring out what you want to achieve relatively quickly, and where you want to be in three years, five years, 10 years or more in the future. Then you can build the map that will get you there. A few simple strategies can help you along the way.

Think realistically

You might believe that positive thinking is the way to get ahead, but research shows that those who think critically and take the whole picture into account actually succeed more often. That doesn’t mean you should be negative, but don’t ignore reality when creating your goals.

Focus on today

Dwelling on the distance between your starting line and target destination can be overwhelming. But a journey of a thousand miles begins with a single step, plus a lot more single steps until you get there. So focus on the small daily changes that can add up over time, like rounding up purchases to your savings account.

Use credit strategically

A credit card can be a great tool, but not if you max it out and carry a balance for months on end. A great strategy for building your credit is to make small purchases and then pay them off before your bill is due. If that’s not possible, make at least the minimum payment on time, every time.

Resist impulse buys

Minimize your shopping trips to help curb the urge to splurge — like when you go to the store for one thing and end up buying 10. Also consider forgoing expensive habits, like picking up a $6 latte each day when you could brew your own coffee at home.

Reward your wins

If you’re training for a marathon, you don’t run 26.2 miles the first day — you build endurance over time. To keep yourself motivated for your money marathon, break down your longer goals into smaller milestones and treat yourself with something special as you pass each one.

Conclusions

Setting your short-term and long-term financial goals isn’t necessarily easy, but the formula is pretty simple:

1. Figure out where you are now by making a budget
2. Decide where you can increase income or decrease expenses
3. Devise a plan to get where you want to be by creating SMART goals

You can use some tools to help, like a spreadsheet, mobile apps that automate your finances, and a credit card to manage your purchases. As long as you keep an eye on your accounts and pay off your balances as soon as possible, chances are you can achieve your financial goals. It will require some patience and diligence, but shouldn’t be too painful.