How to Budget for Short-Term and Long-Term Financial Goals

Short-term and long-term goals might seem self-explanatory, but some cases aren’t exactly clear-cut. Here are a few ways to identify your goals, plus budget and save for them accordingly.

What are short-term financial goals?

Short-term goals describe your more immediate plans, beyond simply covering necessities. Although timelines vary, these are the things you’ll spend money on generally within a few months or years.

Short-term goal examples:

• Emergency fund.

• Credit card debt paydown.

• Personal goods.

• Travel.

• Wedding.

• Minor repairs and home improvements.

What are long-term financial goals?

Long-term goals are usually big-picture items. These goals may take several years or even decades to reach. Your distant goals typically involve more money and regular attention than short-term goals.

Long-term goal examples:

• Retirement fund.

• Paying off a mortgage.

• Starting a business.

• Saving for a child’s college tuition.

The gray area

There is often overlap between the two categories that can make things fuzzy. Medium- or mid-term goals fall between short-term and long-term goals and tend to take a few years to achieve.

Mid-term goal examples:

• Buying a car.

• Saving for a down payment.

• Paying off debt.

Other goal periods can be tougher to estimate. For example, you might not need an emergency fund for several years, or you might need it right away. There’s no way to know when car repairs or medical bills will pop up. And the amount of time it takes to chip away at your debt depends on how much money you’re willing and able to put toward it.

How to prioritize goals

You’ll likely have a combination of short- and long-term goals to balance. Work your goals around your usual expenses, focusing on needs like food and shelter first. Emergency and retirement funds are also high priority; contribute to these funds and pay off debt next. Then you can decide how to allocate the rest of your money toward your wants and other savings goals.

How to budget and save

Know where you stand before you start to budget and save for your goals. Determine how much money you can spend and how much you can save per month based on your income. Use this 50/30/20 budget calculator as a starting point. Set a timeline for your goals, then work toward them.

Try to cut back on purchasing things you don’t need and set the savings aside for your goals. You might use some of this money immediately on short-term goals or to make a dent in your long-term goals.

Where to save

Find a safe place to store your nest egg until you need it. For short-term goals and your emergency fund, you’ll want to keep your money somewhere you can access quickly and without penalty, like a savings account. (NerdWallet has a list of the best savings accounts.)

You may reach your long-term goals quicker by putting your cash into a savings account or certificate of deposit with a high interest rate, or by investing, especially if you don’t plan to use this money for at least five years — say you’re starting a college fund for your newborn. That way you’ll allow time to build up a positive return.

For retirement funds, here's how to choose between IRA and 401(k) accounts.