Setting and Reaching Intermediate Term Personal Finance Goals

Once our house is bought and furnished, our next goal will be focusing on a pair of vehicle replacements that will occur roughly five years from now. We would truly prefer to pay cash for both vehicles if at all possible, so that means we need to start saving now to reach this goal.

What’s an intermediate term goal? An intermediate term goal is usually centered around a large purchase, often on the order of a year’s salary for most middle class people. This might also revolve around paying off an amount borrowed to make such a purchase, like a car loan or a student loan.

What sets an intermediate term goal apart from other goals? Unlike short term goals, intermediate goals are usually large enough that they can’t be dealt with by using consumer credit. However, unlike long term goals, they aren’t big enough to influence major life choices. They fall into that middle category.

Goals like these require some careful planning, because left unattended, these goals can fall apart on you and can also ensnare you in debt.

Clearly define the goal. What are you actually shooting for? Usually, it’s to completely pay off a debt or to make a significant purchase in cash (like an automobile). Nail down exactly what you’re trying to do, then do the math to see how much money you’ll need to make it happen.

Break the goal down into short term goals. Set up annual milestones, then treat these milestones as short term goals. For example, you might set a goal of saving $5,000 towards an automobile each year so that in five years you can buy a late model used Lexus (something we’ve discussed). Then that $5,000 becomes a short term goal, one that you can focus on using short term techniques.

Allow your savings to not be liquid for short periods. This means that if you have an option to buy a certificate of deposit that returns 6% and it clearly ends before your goal arrives, don’t hesitate to go for the good return. The rest should still go in a high-interest savings account. Over periods of less than ten years, I don’t feel confident in the stock market as a good place to store your money.

Be diligent. One big advantage of breaking it down into short term goals is to make sure you’re making progress all the way along. Don’t fluff it off because it seems far away – do whatever you need to do to keep the goal immediate.

Here’s a real example of an intermediate goal. As I mentioned above, my wife and I are focusing on buying two autombiles in five years’ time. We haven’t determined the exact division yet, but combined we are targeting $30,000 in savings. In order to meet this goal, we have broken it into five short term goals in sequential years to save $6,000 each year. Given that we’re expecting a 5.5% annual return on this money, we’re investing $100 each week, which by our calculations gets us very close to the $30,000 mark in 5 years. One advantage is that we’re both willing to continue driving our current late model used cars (well, relatively late model) until they give out on us, so once we reach this goal, that doesn’t mean we immediately buy a car. When we have that car fund built, we celebrate because we’ve reached that goal – and then we find another good use for that $100 a week.

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