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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
Prioritizing Goals
The problem with short-term goals is that there are generally
too many. Some of you goals might be to pay off your credit
cards, save for a home or car down payment, save for a dream
vacation or even holiday expenses. In this case, it's important
to prioritize your goals to help ensure that the most important
ones are met first.
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 bills. They are issued by the U.S. government
and backed by its full faith and credit. Treasury bills
have a maturity of one year or less and are exempt from
state and local taxes.
- Certificate of deposits (CDs). 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 accounts. 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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