How To Balance Short-Term & Long-Term Financial Goals
Do you feel like you want to achieve a lot but are having difficulty finding the right balance between setting successful short-term and long-term financial goals? Managing your finances can seem daunting, especially when trying to make sure that your future plans don’t impact your current responsibilities. But with proper planning and execution, it is possible to set both short-term and long-term goals while keeping a focus on the bigger picture of your financial wellbeing. In this blog post, we will discuss how to prioritize and approach balancing both types of goals in order to maximize success over time.
Short-Term Financial Goals
When you set and work toward short-term financial goals, you lay the groundwork and gain the self-assurance you need to tackle longer-term, more ambitious objectives. You can complete these fundamental stages in as little as a year: Develop and adhere to a financial plan. Establish a reserve fund. Get out from under that mountain of credit card debt.
Keeping note of your finances can be as easy as downloading a free budgeting app, such as Mint. It will compile your financial records into a single location, making it simple to classify your spending. You can create a budget the old-fashioned way too, by categorizing your recent expenditures and financial records in a worksheet or on paper.
If you work from home and order Seamless every day (or eat out for lunch with coworkers often), you may find that you spend $315 per month, or $15 per meal, for 21 workdays. It’s possible that you and your significant other spend an extra $100 each month on dinner out on the weekend. You can direct your future financial resources more wisely when you have a clear picture of your current expenditures to use as a reference. Is spending $315/month on dining out because it’s enjoyable and convenient worth it to you? Providing you have the funds, that’s fantastic! But if you don’t want to continue using this $315, you’ve just stumbled upon a simple method to reduce your monthly spending.
Create an Emergency Fund
You should always have some cash put away in the event of an emergency. Aiming for between $500 and $1,000 is a reasonable starting point. When you get there, you can increase your emergency fund to prepare for more severe financial setbacks like losing your job. Before the COVID-19 epidemic, you might not have realized how important it was to have a backup reserve. And if you did, you might have used it up and now your emergency fund needs a top-up.
If you are married and both of you work for the same business, or if you live in a region with few employment opportunities, it is recommended that you save at least six months’ worth of expenditures to meet your financial responsibilities and basic requirements.
The money you can afford to put away each month (based on your budget) should be deposited automatically into your emergency fund, as recommended by financial advisors. You should immediately put aside any additional cash, such as a windfall, tax refund, or “second” monthly salary (which occurs twice a year if you are paid biweekly).
Pay Off Credit Cards
No one, not even financial experts, can agree on whether it’s preferable to pay down debt or build up an emergency fund. It has been argued that if you already have credit card debt, you should still start putting money aside for an emergency fund because any unexpected expenses will only cause you to incur more debt. Others, however, contend that high interest rates on credit card debt mean that it should be paid off before anything else can be saved. Pick the strategy that speaks to you the most, or mix aspects from both.
Short-term Debt Negotiation
When the minimal payments on unsecured debt (like credit cards) add up to more than one can afford each month, it may be time to consider debt negotiation or settlement. In exchange for a fee (typically a percentage of the total debt or a percentage of the amount of debt reduction), Federal-Trade-Commission-regulated companies offering this service will negotiate with creditors on behalf of consumers to reduce their debt by as much as half. In two to four years, consumers can be debt-free using this method.
Long-Term Financial Goals
Most people’s main long-term financial objective is accumulating sufficient assets to fund their retirement. The general recommendation is to put away between 10% and 15% of your income into a tax-deferred savings account such as a 401(k), 403(b), conventional IRA, or Roth IRA if you are eligible. But to make sure you’re saving enough; you should figure out how much money you’ll need to retire.
Consider Your Retirement Requirements and Make a Plan
- Step one in planning for a comfortable retirement is determining how much money you’ll need each year. Take a look at your initial budget you made when starting out on your path to achieving your short-term financial objectives; it should give you a good idea of how much money you will need. Keeping yourself healthy and busy in retirement may require you to plan ahead for higher healthcare costs.
- Deduct the money you’ll be withdrawing. When figuring out your sum, don’t forget to add in items like benefits, Social Security, and retirement plans. You’ll be left with the amount that must be covered by your savings.
- Think about when you’d like to quit and how much money you’ll need accumulated by then. Think about your annual salary and how much you can save. With the assistance of an online calculator, retirement planning is made easier. If you expect that 4% or less of the amount will be enough to pay the expenses that your combined Social Security and benefits will not, then you are ready to retire.
If you had a $1,000,000 portfolio and withdrew $40,000 (4% of $1,000,000) in the first year, and then increased your withdrawal by the rate of inflation in each of the following years ($40,000 plus 2% in year two, or $40,800; $40,800 plus 2% in year three, or $41,616), you would have had enough money to last through any 30-year retirement. Because of this, 4% is often used as a rough estimate when discussing retirement savings. Using 4%, you’d wind up with more money after 30 years in the vast majority of cases, but in the worst case, you’d be cash-less by year 30.
Increase Retirement Savings
An employer-sponsored retirement plan is one in which the company contributes to the employee’s retirement account at a rate equal to or greater than the employee’s own contributions. They could double or even triple your contribution, up to a certain percentage of your salary, such as 3% or 7%. The single most essential thing you can do to secure your financial future is to pay enough to your retirement plan to receive your employer’s entire matching contribution.
When it comes to retirement savings, experts advise putting money into an IRA at the beginning of the year rather than the end, when most people do it. This will give the money more time to grow and ultimately provide a larger sum at retirement.
Whatever your reason for saving, the first step is to formulate a strategy and stick to it. In spite of how well thought out your strategy is, success will depend on your commitment to seeing it through to completion. It could make sense to consult a financial expert in some situations. Having a strategy can also make a large, intimidating objective, like saving for a down payment for a house or a trip to Europe with the family, seem more manageable.
So, the next time you want to accomplish something, write it down or consult an expert. You should evaluate your financial situation to determine the regular amount you can put toward the target. It might be easier to accomplish than you think. Once you have a strategy in place, you can go about your day with the confidence that, with hard work, you just might make your goal come true.
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Content provided by Paradox Media.
This information is not intended to substitute for specific individualized tax, legal, or investment planning advice. Neither Royal Alliance Associates nor its representatives or employees provide legal or tax advice. If legal or tax advice or other expert assistance is required, the service of a currently practicing professional should be sought.