When it comes to saving, many people focus on long-term goals like saving for a retirement, a child’s education or their first home. Saving for short-term goals are important, to accommodate for your current needs. A common challenge many people face is how to save for short-term goals without putting your long-term investments at risk?
Define your goals
How does one save for a new car or home appliances and still contribute to the Registered Retirement Savings Plan (RRSP) or Registered Education Savings Plan (RESP)?
It starts by setting goals, prioritizing and assigning financial assets to those goals, along with timelines to achieve them.
Here are some common short-term goals:
Emergency fund in case the unthinkable happens, like you lose your job
Make a savings plan
Next, estimate how much you’ll need to save. For an annual vacation, for example, you’ll want to research the cost of flights, accommodations, meals and pocket money. Let’s say your ballpark figure is $5,000. If you save for this trip over a year, your monthly savings contribution would be approximately $420.
Review your current budget to determine if you can accommodate for your short-term goals. You may have to reduce your current spending habits to free-up cash to direct to your goals. Then re-allocate this money to your savings plan. You might have to bring your lunch to work instead of buying it or skip your daily coffee. But you’ll be most of the way to your savings goal in a year and can travel debt-free.
If there’s no way you can skim $420 dollars from every paycheque, you might need to change your goal timeline horizon. Putting off your vacation for another six months will give you 18 months to save, which means you’ll need to put away closer to $277 a month.
Set-aside a portion from every pay cheque into a separate savings account, money market fund or guaranteed investment certificate (GIC) as soon as you get paid. You’ll earn interest in these investment vehicles and every bit counts in short-term savings. A tip is to set-up an automatic savings program, which automatically transfers funds to your savings account on a schedule that works best for you. This will keep your savings goals on track and ensure you don’t de-rail your vacation plan.
Once you reached one of your short-term goals, you can re-allocate those monthly contributions to another short-term goal or boost your long-term goals. There will never be a shortage of financial savings goals.
Saving for both short-term and long-term goals can be accomplished with the right advice. Call my office today to review your goals and build out a multi-goals plan.