Timing is a key component of any practical savings plan. But not all savings goals are the same, and the time frame for a certain goal makes all the difference in how you'll achieve it. A goal that's five years out will likely have a different approach than one that's 10 to 20 years in the future. You'll usually see financial goals categorized into three timeframes:
A short-term goal may be paying off a small balance on a credit card or saving $1,000 in an emergency fund, while buying a new car or paying down student loans could be examples of midterm goals. Saving for retirement, paying for your kids' education or buying a vacation home could all be examples of long-term goals.
A good savings goal depends on where you are in life and your current financial situation. You don't need the same goals as your siblings, friends or neighbors. Examples of savings goals include:
To pick a savings goal, start with what's most important to you right now. Ideally, your savings goal will strike a balance between your short-term and long-term aspirations, ensuring financial stability while considering your lifestyle.
A common rule of thumb is to aim for an emergency fund worth three to six months of living expenses. This can help you cover some of life's surprises, like a medical event or car repair. Outside of preparing for the unexpected, consider allocating funds for specific objectives like paying off debt, buying a home or retiring comfortably.
To determine a good savings goal, factor in your income, expenses and the timeline to reach your goals. Then set up a budget and leverage financial tools — such as Citizens Savings Tracker™, which helps you easily track and set goals.
Remember, it's not about how much you earn but how well you manage and allocate your resources that could lead to a successful savings goal. And keep in mind that the best saving strategy is the one that works best for you.
Since short-term financial goals are those you can reach within a year, examples include:
When saving for a short-term goal, keep your money as liquid as possible so you can easily access it. A savings account, money market account or certificate of deposit (CD) account are usually best. Money market accounts and CD accounts typically don't have the same returns as investment accounts but usually have higher interest rates than traditional savings accounts. All three types of savings accounts are FDIC-insured, so your money won't lose value.
Lucas is 25, has a full-time job and wants to start setting money aside in an emergency fund. His goal is to save up three months' worth of expenses, or around $9,000.
To reach his goal in the next 12 months, Lucas will need to save $750 per month. He opens a money market account and sets up automatic transfers from his checking account to the new account each payday. He gets paid twice a month, so $325 from each paycheck gets transferred into the money market account. Since he never actually sees that money in his checking account, Lucas isn't tempted to spend it and reaches his $9,000 goal in one year.
Since midterm financial goals can take up to five years to achieve, some common examples might include:
Traditional savings accounts, money market accounts, CD accounts and bonds are all good ways to save for midterm goals.
Consider how Lucas might shift his approach to a midterm goal. Now that he has three months of emergency savings, he's decided to set his sights on homeownership. He'd like to have a 5% down payment within three years.
To get started, he'll figure out how much he needs to save. He estimates that in three years, he'll be able to buy a $400,000 house. That means he needs to save $20,000. He doesn't want to use his emergency fund for the down payment, but he does have $3,000 saved separately from that fund. He has 36 months to save up the remaining $17,000.
Lucas decides to put the $3,000 savings into a 12-month CD account with an annual percentage yield (APY) of 1.25%. He doesn't anticipate needing access to those funds in the near future, plus he wants to remove the temptation to use those savings. By using a CD account, Lucas' $3,000 can earn a higher rate than his current savings account, the funds are locked away and the return is guaranteed. He knows his CD account will have a value of $3,037.50 at the end of the 12-month term. That might not seem like much, but it's better than the return he would have received with a traditional savings account.
Since Lucas is able to calculate what his $3,000 will look like after 12 months, he knows he has to come up with the other $16,962.50 over 36 months. As a result, Lucas calculates he'll need to save roughly $471.18 each month, which he puts into a separate, traditional savings account. He sets up an automatic transfer on payday to make saving easy.
At the end of each year, he could reallocate his year-to-date savings into a new 12-month CD account at the same 1.25% APY. A CD account can make sure those funds remain untouched, and they can earn a modest return as an added benefit.
Look five to 20 years into your future, and that's where your long-term goals sit. Examples include:
Since you won't need the money for a long-term goal until years in the future, you can usually invest it in less liquid options, including the stock market, mutual funds or even real estate. These investments typically earn a higher rate of return than savings accounts but don't have FDIC insurance, so they can lose value. Often, the investment accounts you use for long-term goals have tax advantages, such as a 401(k) or IRA for retirement or a 529 plan for college savings.
Grace has dreamed of traveling across Europe ever since she was a kid. She's now 35 and married with two preschool-aged children. She and her spouse decide they'll take the kids on a two-week trip to Europe once they're old enough to appreciate and remember the trip, in about 10 years. Since she has so long to save for her trip, Grace has a lot going for her. She also faces a lot of unknowns, which can make it more challenging to create a consistent savings plan. But since she has a full 10 years to save, she can take more chances and alter her plan as she goes, particularly since she has some flexibility on when they take the trip.
Grace estimates they'll need $20,000 for the family vacation, and she decides to open an investment account to help her get there. She's comfortable with taking on risk, knowing the vacation is more of a "want" than a "need." Plus, she has the flexibility to postpone the vacation a year or two if she needs more time to reach the $20,000 goal. She also has compound interest working in her favor, meaning the interest her money earns will begin to earn interest too, increasing her savings.
Here's how her money could grow over the 10-year window if compounded annually:
Year |
Cumulative Contribution |
End-of-Year Balance |
Cumulative Return |
1 |
$1,800 |
$1,857 |
$57 |
2 |
$3,600 |
$3,844 |
$244 |
3 |
$5,400 |
$5,970 |
$570 |
4 |
$7,200 |
$8,245 |
$1,045 |
5 |
$9,000 |
$10,679 |
$1,679 |
6 |
$10,800 |
$13,284 |
$2,484 |
7 |
$12,600 |
$16,071 |
$3,471 |
8 |
$14,400 |
$19,053 |
$4,653 |
9 |
$16,200 |
$22,244 |
$6,044 |
10 |
$18,000 |
$25,658 |
$7,658 |
*This chart is for illustrative purposes only and does not represent actual or future performance of any fund.
Your financial goals will likely vary based on your age, and you can also adjust them over time. After all, a long-term goal to save for retirement isn't as long term as you approach retirement age. Here are some examples of financial goals you might work toward during different life stages.
When you're fresh out of college, your financial goals might include:
As you reach your 30s and 40s, your financial goals might include:
When you're in your 50s and 60s, your financial goals might include:
Your particular financial goals at each age may vary based on your life circumstances. Some financial goals may not apply to you, or you may have other goals not listed here. How much you're able to set aside may also vary depending on your other financial obligations. A financial advisor can be a valuable partner throughout your life, helping you stay on track to reach your financial goals.
Regardless of your personal financial goals, saving involves outlining a plan and sticking to it. Having a plan can take a daunting goal and help you understand how to reach it. It might be more achievable than you originally thought.
So the next time you have a financial goal in mind, map it out or talk to a financial advisor. Review your budget to see how much room you have to regularly contribute to the goal. And take advantage of available savings tools — like the Citizens Savings Tracker™ — to help you stay on track. Once you have a plan set, you can turn that dream into a reality.
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