How to save money for short and long-term goals

6 mins readLast updated October 4, 2023by Kate Morgan

Whether they are short or long term, your savings goals are crucial to your financial planning. But depending on your outlook, your plans may entail the next five years, or the next twenty. And while there is no right or wrong answer about your savings timeline, it’s important to remember that different strategies will be more effective for different periods of time.

Putting away money each month, or building on your current wealth, requires time and effort.

So, making sure that you’re pursuing the right saving strategies in the context of your goals is crucial to making them a success. 

Short-term financial goals

It may seem like a given, but making sure that you’re aware of the difference between short and long term financial goals is imperative to effective saving.  

As a general rule, a short-term finance goal can be defined as any big expenditure that you’re saving for within the next three to five years.

Of course, these timelines may vary, and you may even be looking to save up cash in a shorter period than this.

But these more immediate expenses will mean that you’ll need to increase your savings pot at a faster rate than if you were saving for a longer-term goal.

Examples of short-term finance goals include: 

  • Building up an emergency fund 

  • A down payment for a property 

  • Debt payments, like credit cards or student loans 

  • A new vehicle 

  • Minor repairs and home improvements

Often, your short-term savings goals will have a relatively inflexible timeline – but they may not be on such a large scale as long-term goals.

Long term financial goals

There’s an increase in scale for your long-term finance goals, both in terms of time frame and the amount you may be looking to save.

Rather than exploring ‘quick win’ options that may be attractive for short term financial goals, you are likely to seek out safer strategies to build upon wealth over time to reach long term goals, which can include things like: 

  • Building up a retirement fund 

  • Paying off your mortgage 

  • Starting a business 

  • Saving for a child’s college tuition 

While these may seem to some like distant goals, savvy savers will have these long-term aims in mind far before they come to fruition.

Saving is often deemed easier when undertaken over a lengthy period of time.

So if you are thinking of your retirement, or have ambitions to establish your own business and need a large sum of capital to do so, then it will pay now to explore the best strategies that can help you towards your goals.

How should you prioritize your saving goals?

While it can be frustrating not to immediately start saving for the future, it’s generally most important to prioritize your short-term financial situation before looking forward to things like retirement or paying off your mortgage.

As a priority, you should aim to save up an emergency fund that equals three to six months’ worth of expenses, as this will help to deal with unexpected costs like layoffs or medical bills.  

Once you have done so, then this fund can be tucked away in a money market account or a certificate of deposit (CD), meaning it will earn interest while remaining easy to access should you need it.  

You can then start looking at other short-term items outside of your emergency fund that may be essential to your lifestyle.

If you need a new car, for example, or are looking to save money to get onto the property ladder, then these savings should sit outside of your emergency fund, but may be prioritized over your long term savings goals.  

it’s generally most important to prioritize your short-term financial situation

The benefits of budgeting

If you have a timeline in place for your saving goals, whether they be short or long term, you can turn to budgeting as a great way to start cutting unnecessary spending and making more efficient use of your money.

If you don’t budget, it’s easy to fall out of the habit of limiting your outgoings, and ultimately missing out on the things that matter to you.

This is particularly important for your short-term goals, like saving for a property, or buying a car, as trimming money off your monthly spending can be an effective way of building up a savings pot to hit those types of goals.  

Once you have worked out your monthly limits for expenditure and weighed them up against your income, you will be able to make informed decisions on whether you’ll need to do things like switch to generic brands while shopping, downgrade your car, or cut things like streaming service subscriptions.  

Saving strategies to suit your financial situation

Of course, budgeting is not the only viable saving strategy, and may be better suited to some people’s financial situations over others.

One of the best ways you can save, is to place your money into accounts that are suited to your financial goals.  

If you’re looking to save for short term financial goals which fall in the next three to five years, then you may find that a high-yield cash account will be beneficial.

As a low-risk option, you’ll be avoiding any market volatility while potentially earning much higher interest rates than with a traditional bank.

While it may be tempting to invest your short-term savings, the time scale may mean that you will have to take risks to achieve your goals. And with the market currently in such an unpredictable state, you certainly don’t want to see your savings eroded when they may be needed the most.  

However, when looking at long term financial goals, investments can be more of a viable option.

While it can be tempting to hold your long-term savings in cash, the inflation rate is unlikely to keep up with inflation – with the last decade serving as evidence.

If you don’t want your savings to lose buying power, investing can help you to do so.

There are plenty of ways for you to invest your money, and financial advisors are on hand to help you do so in a way that is right for your financial situation.

Often, a diverse portfolio that spans low-cost index funds can avoid the risk of investing in individual stocks while ensuring that you build wealth over time, and successfully work towards your long-term financial goals. 

Content writer

Kate Morgan

Kate has written for leading publications and blue chip companies over the last 20 years.