Tip of the Week
Prioritize putting money away for short-term savings goals.
You’re probably familiar with the idea of long-term savings goals—saving money for retirement or buying a house, for example. But it’s important to put money away for more immediate expenses and your short-term financial goals too.
What is short-term savings?
Money set aside for upcoming expenses, such as vacations or holiday gifts, that you keep in an easily accessible account.
- Whether you follow the 50-30-20 method, the envelope method, or some other way to allocate your monthly cash, dedicate some portion of your budget to short-term savings.
- Get clear on your short-term savings goals. One goal could be to create an emergency fund. That should cover three to six months of living expenses in order to cover sudden costs like a car repair, medical expense, or layoff. Short-term savings goals might also include saving money for vacations, dinners out, new clothing, or entertainment.
- Automate your savings. As soon as you get paid, have money automatically deducted and placed into a dedicated savings account. For many people, if they can’t see the money, they won’t spend it.
- Save what you can. Even if you’re putting away just a few dollars each month, it will help you develop short-term savings.
- Keep short-term savings in an easily accessible account, like a savings or checking account, where you can take it out with no financial penalties or fees once you’ve reached your goal.
Note: Psychologically it might be easier to meet a short-term savings goal, because it involves a smaller amount of money than the cost of a long-term savings goal.
If you put away $20 a week, at the end of one year you will have $1,040.1
What is long-term savings?
Savings you let sit in an investment or high-yield savings account for years, often for bigger goals such as retirement, or buying a house.
What is discretionary income?
Money left over after you’ve paid your monthly essentials, such as rent or mortgage, student loans, and utilities.
Find out more
How to Save Money with the 50-30-20 Budget
It’s one of the most popular budgeting concepts. We break down the 50-30-20 budget and teach you all about fixed and variable expenses, as well as some strategies for reducing monthly costs.
Checking Accounts vs. Savings Accounts: What’s the Difference?
We explain the difference between these two popular ways to store your money. In this article, you’ll learn which account is for short-term expenses, and which one is for longer-term goals, and why.
1Expected returns are hypothetical in nature and may not reflect actual future results.