Short-term financial goals

Saving for a big event in your life is exciting, and it's easy to create a plan that can help you reach that goal. You can start by making a budget, paying down debt, or improving your credit score.

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What's a short-term financial goal?

Short-term goals range from a few months to 3 years. The amount of time depends on the goal, how much it'll cost, and how much you're able to save toward it.

When you think of investing, you most likely think of accounts used for long-term financial goals, like a 529 plan for college savings or an IRA for retirement. But investing can also benefit short-term goals for things you want to buy or do in the near future.

While it might be tempting to use a credit card or borrow from other savings to fund your goal sooner, it's best to avoid these methods since they can cost you more money in the long run. Instead, focus on making a plan to achieve your goal and determining the best way to invest for it.

Examples of short-term financial goals

Your plan for achieving short-term goals can vary based on how much you need to save. Below are examples of short-term financial goals you might have and strategies for achieving them. Setting realistic saving targets and managing your finances accordingly can help you effectively plan for and achieve these short-term financial goals.

Pay down debt

Prioritize debts with the highest interest rates first or start with the smallest debts for quicker wins. Consider consolidating debts to lower interest rates—but be sure to review the repayment terms, since a longer term at a lower rate could still result in paying more interest over the term of the loan.

Plan a wedding

Set a budget that includes all expected costs, save a fixed amount monthly, and consider a dedicated account for wedding expenses to track your progress.

Buy a car

Determine the type of car and the total cost, save for a significant down payment to reduce the amount you need to borrow, and shop around for the best financing options.

Save for a down payment on a house

Decide what percentage of the home price you need to put away for a down payment and make a plan to invest what you can on a consistent basis, with an asset allocation that reflects your time horizon and risk tolerance.

Build an emergency fund

Aim to save 3 to 6 months' worth of living expenses in an easily accessible investment account, such as a Roth IRA or taxable brokerage account. This gives you a buffer for something like unplanned loss of income, such as layoffs, or a sharp reduction in salary or hours. For spending shocks like an unexpected car repair or a new home appliance, work on saving $2,000 or half a month's expenses in a high-yield savings account by regularly setting aside a portion of your income. This could take anywhere from 1 to 3 years.

Save for a trip

Estimate the total cost of the trip, create a savings plan, and consider automating savings to a dedicated travel fund.

Make minor home improvements

Budget for specific home improvements such as a repair or new appliance, prioritize projects based on necessity and budget, and save a set amount monthly toward this goal.

Save for a large purchase

Determine the cost of the item, save a fixed amount monthly by cutting unnecessary expenses, and consider using a separate savings account to avoid spending the funds prematurely.

How to set short-term financial goals

Having a focused and practical approach to setting and managing your short-term goals will make it easier for you to achieve them. It can also help prevent you from borrowing money from other longer-term goals. You can do this by setting goals that are specific, measurable, achievable, relevant, and time-bound (SMART).

Setting SMART financial goals

When planning for your short-term goals, make sure those goals are:

1. Specific. Instead of having a general goal of saving money, specify what you're saving for and how much you want to save.

2. Measurable. Make your goal a set dollar amount. This way, you can check in regularly to see how close you are to reaching your goal.

3. Achievable. Consider your financial situation and resources to make sure your goal is realistic and attainable.

4. Relevant. Ensure your goal is important to you and aligns with your other financial priorities.

5. Time-bound. Set a clear target date. This helps prevent everyday expenses from overshadowing your longer-term financial goals.

Example 1. Carlos and his partner are getting married in 2 years. They both agree that saving for the wedding is important to them, and they want to pay for the party without incurring debt. They decide the budget for the wedding is $24,000. To reach their financial goal, they plan to each contribute $500 per month for the next 2 years.

Example 2. Priya just got a promotion at work. As a gift to herself, she plans a trip to Japan. She'll need $4,000 for the trip and she wants to achieve her goal in 8 months. She decides to save $500 each month by cutting back on dining out and entertainment.

How can investing help you reach your short-term financial goals?

After you pay your bills, you might just keep your leftover cash in a checking or savings account. But putting that money into a separate investment account instead can have 2 major benefits.

1. Investing your money keeps you from buying something else

No matter how much you want to check a savings goal off your list, it's all too easy to spend the money on something else when it's just sitting in your bank account. The best way to ensure that your money goes toward your goal is to move it out of your bank account before you feel the urge to spend it.

Keeping your money in a brokerage account or a cash management account, like Vanguard Cash Plus, helps make it easy to earn competitive returns and still access those funds when needed. One way to prioritize your goal is to set up recurring investments. When you do this, the money will go directly to the account you're using to save for your goal.

Explore the benefits of making automatic investments

2. Considering your average return might help you reach your goal faster

When investing for a short-term goal, you may want to consider the average expected return on the investments you choose. Over time, this return is based mainly on the amount of risk associated with the investment. For example, less-risky investments like bonds, certificates of deposit (CDs), or savings accounts generally have a lower return potential, while higher-risk investments like stocks generally have a higher return potential.

Short-term investments

Short-term investments—including cash investments and short-term bonds—offer liquidity and are designed to be held for a short period of time, with potentially higher returns than traditional savings accounts. CDs are another option to consider, as they offer competitive returns compared with most bank savings accounts. They're designed to be held for a fixed time period, so it's important to be sure that it aligns with your own time horizon.

Generally, short-term investments should be lower risk because of the need to preserve principal.

Money market funds

Money market funds are mutual funds that invest in short-term, high-quality debt securities. These funds aim to offer higher yields than regular savings accounts while maintaining liquidity. You can use them for emergency funds or saving for near-term expenses that may require quick access to your money.

Bonds

Bonds are debt securities issued by governments or corporations to raise money. When investors buy bonds, they agree to lend money in exchange for periodic interest payments and the return of the bond's face value at maturity. Short-term bonds or bond funds can be used for short-term goals, and are also an important part of a strategic asset allocation for any goal. They're generally safer than stocks and can be a good way to preserve capital while earning a steady return.

Cash management accounts (CMAs)

Cash management accounts (CMAs) are alternatives to traditional bank accounts that simplify money management. Their goal is to help keep your money secure while offering a competitive annual percentage yield (APY) and similar features to traditional bank accounts. The Vanguard Cash Plus Account is a cash management account featuring a bank sweep that offers FDIC insurance¹ and a competitive APY² on your short-term savings. You can use the bank sweep as a low-risk place to keep cash for both your short-term needs and any potential emergencies.

Certificates of deposit (CDs)

Certificates of deposit (CDs) are deposit accounts that typically offer higher interest rates than regular savings accounts. You agree to leave a lump sum deposited for a fixed period, ranging from a few months to several years. They're a solid option for short-term goals where you won't need immediate access to your money—like saving for a down payment on a house or a large purchase you plan to make after the CD matures.

By investing, you could reach your goals faster

The chart shows how investing can accelerate your path to reaching a $10,000 savings goal. If you save $200 a month and earn an annual return of 5%, you'll hit your target in just 3 years and 9 months, with a total investment of $9,000.

Compare this with saving the same amount in a low-interest account earning only 0.5% annually. In that scenario, it would take you 4 years and 1 month to reach $10,000, requiring a total of $9,800 in deposits.

Choosing an investment with a higher return potential could help you reach your savings target sooner.

This hypothetical illustration doesn't reflect any particular investment nor does it account for inflation. The rates are not guaranteed. There may be other material differences between investment products that must be considered prior to investing.

By investing, you could reach your goals faster

Choosing an investment with a higher return potential could help you reach your savings target sooner.

This hypothetical illustration doesn't reflect any particular investment nor does it account for inflation. There may be other material differences between investment products that must be considered prior to investing.

Ready to start saving for your goal? If you have a short-term financial goal, make a plan to get started.

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¹Bank Sweep program balances are held at one or more Program Banks, earn a variable rate of interest, and are not securities covered by SIPC. They are not cash balances held by Vanguard Brokerage Services (VBS), a division of Vanguard Marketing Corporation (VMC); VMC is not a bank. Balances are eligible for FDIC insurance subject to applicable limits. See the list of participating Program Banks (PDF).

²The bank sweep program annual percentage yield (APY) will vary and may change at any time.

All investing is subject to risk, including the possible loss of the money you invest.

Bank savings accounts offer different services and features than a Vanguard Cash Plus Account. For example, savings accounts often offer features like overdraft protection, ATM access, bill pay services and other conveniences that Cash Plus Accounts do not offer. Cash Plus Accounts allow you to hold certain securities that bank savings accounts cannot hold. In addition, Cash Plus Accounts are subject to fraud prevention restrictions such as holding periods and transaction limits, which may not apply to a bank savings account. There may be other differences between these products that you may want to consider before choosing which option is best for you.

Bank deposit accounts and CDs are guaranteed (within limits) as to principal and interest by the Federal Deposit Insurance Corporation, which is an agency of the federal government.

There may be other material differences between products that must be considered prior to investing.

Investments in bonds are subject to interest rate, credit, and inflation risk.

The Vanguard Cash Plus Account is a brokerage account offered by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation, member FINRA and SIPC. Under the Sweep Program, Eligible Balances swept to Program Banks are not securities: they are not covered by SIPC, but are eligible for FDIC insurance, subject to applicable limits. Money market funds held in the account are not guaranteed or insured by the FDIC, but are securities eligible for SIPC coverage. See the Vanguard Bank Sweep Products Terms of Use (PDF) and Program Bank list (PDF) for more information.