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Achieving Short-Term Goals
Abe Walker wanted to buy a powerboat so his family could spend their summers water skiing at the lake near his house. But while Walker didn't have a lot of extra cash, he was just two payments away from paying off his car.
After paying off his car, Walker continued to make those $300 payments each month into his savings account. He never faltered. By the next June, he had enough to make a downpayment on a boat, and was able to continue making payments using the money he had previously allotted towards his car.
Short-term goals are generally defined as those that may be achieved in one year or less, like Mr. Walker's boat. In order to meet this type of goal, try these three strategies:
- Cut expenses to create more discretionary income
- Set aside a certain amount of money each month
- Invest in short-term vehicles where you may access assets quickly
Short-term goals
The problem with short-term goals is that there are generally too many. In this case, it's important to prioritize your goals to help ensure that the most important ones are met first. For example:
- Pay off credit cards
- Downpayment for a home
- Downpayment for a car
- Vacation
- Christmas/Holiday expenses
Savings strategies
- Pay yourself first-after the mortgage and utilities but long before the pizza and videos, write a check out for the same amount each month and deposit it into your savings or short-term investment account.
- Continue making payments-say you just paid off your car; continue making the same payments each month, only now deposit them in your savings account before the money gets spent elsewhere.
- W-2 withholdings-if you generally receive a large tax refund at the end of the year, your employer is probably withholding too much from your paycheck. Reduce your deductions and put the pay increase directly into an interest bearing account to help save towards your goal.
Investment selection
- For short-term goals, fixed rate investments are your best choice. These guarantee to pay a certain amount of interest on your deposit as long as you maintain your investment for the specified period of time.
- Treasury bill-a negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of one year or less; exempt from state and local taxes.
- Certificate of deposit (CD)-Short- or medium-term, interest-bearing, FDIC-insured debt instrument offered by banks and savings and loans; features low risk, low return, and an early withdrawal penalty.
- Money market account-short term debt securities, such as banker's acceptances, commercial paper, negotiable certificates of deposit, and Treasury Bills, with a maturity ranging from 30 days to one year.
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