What's a short-term financial goal?
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.
Short-term goals are usually made to be accomplished within a few months to a few years. The amount of time it takes to achieve depends on the goal, how much it'll cost, and how much you're able to save toward it. It might be tempting to use a credit card or borrow from other savings for these goals, but doing so often comes with drawbacks and can cost you money in the long run. That's why it's important to make a plan and determine 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. Here are examples of short-term financial goals you might have, along with suggested time frames and strategies for achieving them. Setting realistic saving targets and managing finances accordingly can help you effectively plan for and achieve these short-term financial goals.
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 more long-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 goal?
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 spending it on 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.
Investing your money in a brokerage account or a cash management account like Vanguard Cash Plus helps make it easy to save, invest, and see your progress. One way to prioritize your goal is to set up automatic investments. When you do this, the money will go directly to the account you're using to save for your goal.
2. Investing can help you reach your goal faster
When investing for a short-term goal, you may want to consider the average return on the investments you choose or the profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. For example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a lower rate of return, while higher-risk investments like stocks generally earn a higher rate of return
Short-term investments
Short-term investments—or cash investments—are designed to be held for a short period of time. They offer liquidity and allow investors to access their money quickly.
See how investing can help you reach your short-term financial goal
The chart shows that reaching a $10,000 goal would take you 3 years and 9 months if you saved $200 a month and earned 5% a year. In that time, you'd make a total investment of $9,000.
On the other hand, saving the same amount in an account with a low interest rate of 0.5% would take you 4 years and 1 month, and you'd deposit a total of $9,800.
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 goal with less time and money
This chart shows that reaching a $10,000 goal would take you 3 years and 9 months if you saved $200 a month and earned 5% a year. In that time, you'd make total investments of $9,000.
On the other hand, if you saved the same amount but earned only 0.5%, it would take you 4 years and 1 month, and you'd deposit a total of $9,800.
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.
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.
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.
All investing is subject to risk, including the possible loss of the money you invest.
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.