Setting and Reaching Short Term Personal Finance Goals

As I mentioned earlier this week, right now we are focused on saving for a number of short term goals, mostly related to properly outfitting our house once we move in. We currently have minimal furniture and minimal appliances as well, so we are going to have a lot of needs when we first move in. We’re saving for a couch, two chairs, a full range of kitchen appliances, a washer and dryer, and a deep freezer. We’re quite willing to invest well in these up front in order to get reliable, quality models with a lower cost of ownership and we also have no interest at all in buying on credit, so our short term personal finance goals are pretty clear: save a lot for appliances.

What’s a short term goal? Short term personal finance goals are goals that you can reach within a single year, such as saving for a car down payment, buying an appliance, or similar goals. These goals usually involve saving for a significant purchase that is outside of the realm of ordinary household spending.

What sets a short term goal apart from other goals? First of all, the objective is smaller. Usually, a short term goal revolves around a fairly small objective, one that you can usually define down to the dollar in advance if you do some research. Also, the timeframe is shorter and tighter. You likely have a pretty firm target date for accomplishing this goal.

These two factors combine to spell out a pretty solid plan for tackling any short term personal finance goal.

Develop a very strong plan with weekly milestones. Figure out how much you need to save per week in order to meet your goal. Even if the deposits aren’t weekly, know what you need to do every week to meet your target. For some, it may even be worthwhile to take a daily perspective on saving. If it works for you, define each of these milestones as microgoals.

Keep the savings liquid. Don’t tie it up anywhere. High-interest savings accounts are the perfect place to put money that is being saved for a goal like this. Do not invest short term savings money into stocks (they work better over the long term) or items that are hard to free up, like CDs.

Make it automatic. When you set up the savings account, set up an automatic plan that will pull in the appropriate amount each week. This way, you don’t have to worry about it – it just happens. Then, when the time comes, you have what you need in a very liquid form – just withdraw it and go.

Here’s an example. My wife and I set up an account that we defined as our “settling-in” fund. This fund is intended to just buy all of the appliances and furniture that we’re going to need when we move in. Several months ago, we did the research and made some preliminary picks of what we wanted with the assumption that the house will come with no appliances and furniture, then we added up the costs and started saving about $125 a week towards this goal. As we approach the time to move, this fund is looking like one of the best ideas we’ve ever conceived of, because right when we move in, we’re going to go on an appliance/furniture buying spree – and pay for all of it in cash.