You’re probably familiar with the idea of long-term savings goals—saving money for retirement or buying a house, for example. But it’s important to put money away for more immediate expenses and your short-term financial goals too.
What is short-term savings?
Money set aside for upcoming expenses, such as vacations or holiday gifts, that you keep in an easily accessible account.
- Whether you follow the 50-30-20 method, the envelope method, or some other way to allocate your monthly cash, dedicate some portion of your budget to short-term savings.
- Get clear on your short-term savings goals. One goal could be to create an emergency fund. That should cover three to six months of living expenses in order to cover sudden costs like a car repair, medical expense, or layoff. Short-term savings goals might also include saving money for vacations, dinners out, new clothing, or entertainment.
- Automate your savings. As soon as you get paid, have money automatically deducted and placed into a dedicated savings account. For many people, if they can’t see the money, they won’t spend it.
- Save what you can. Even if you’re putting away just a few dollars each month, it will help you develop short-term savings.
- Keep short-term savings in an easily accessible account, like a savings or checking account, where you can take it out with no financial penalties or fees once you’ve reached your goal.
Note: Psychologically it might be easier to meet a short-term savings goal, because it involves a smaller amount of money than the cost of a long-term savings goal.
If you put away $20 a week, at the end of one year you will have $1,040.1
What is long-term savings?
Savings you let sit in an investment or high-yield savings account for years, often for bigger goals such as retirement, or buying a house.
What is discretionary income?
Money left over after you’ve paid your monthly essentials, such as rent or mortgage, student loans, and utilities.