Imagine you have $500 left after accounting for all the probable expenses for the month. What do you do with it? Do you put it in the savings box for a short vacation that you have been planning for months, or do you instantly buy that latest smart watch that is on your wishlist, or do you put it away in your retirement savings account, or settle the high-interest loan debt? 

Managing money is not easy. It is a skill we all need to learn. No matter what you earn or how financially secure or insecure you are, saving is essential. But while saving, we face a difficult question: what do we want to save for? Should we save for short-term emergencies and stability or invest in long-term security? Is paying debts a priority, or is saving for a vacation more important? 

Through this blog, let’s learn how we can balance short-term and long-term financial goals by making smart saving decisions.

Why Balancing Financial Goals Feels So Difficult

People often face a trade-off: either save for short-term needs or set aside funds for long-term goals. It is not easy to decide whether to live in the present or to make your later life comfortable. Unfortunately, when it comes to savings, the right answer is not either-or but both, because choosing either over the other will cause you stress or regret.

Modern living may encourage you to live in the present and make it more fulfilling, but it can also cause future stress. So, keep that in mind as you make these difficult decisions. Yes, we don’t know what will happen in the future, but we still need to be secure on our end and hope for the best.

Understanding Short-Term Financial Goals

Any expenses for which you will be required to pay in the period of one to five years can be classified as short-term goals. Let’s have a look at some of the use cases of short-term goals:

• Starter emergency fund: Build at least 1 to 2 months of essential expenses in case of urgent repairs, salary delays, or unexpected medical expenditure.
• Debt payoff: Settling high-interest loans by dedicating to paying for 6-12 months to prevent mounting interest 
• Vacation: If you are planning a trip in the future, start saving at least 6 to 12 months before the trip date. So that when it is time to go, you don’t have to scurry for loans or dip into emergency funds. 

For short-term goals, the rule of thumb is to prioritize high-interest payments and credit card bill payments to free up cash and prevent unnecessary interest accrual. Also, ensure that wherever you save, you prioritize safety and liquidity.

Read: How Smart Banking Helps in Setting Financial Goals

Understanding Long-Term Financial Goals

With long-term savings, one aims to achieve things that one would require after five years. The savings choices should be strategic and better planned to maximize benefits. You can invest your money so that it grows over time. So that the money you have earned works for you in the future. Examples of some long-term savings goals include:

• Saving for retirement
• Saving for a child’s college education
• Saving to pay the home mortgage

To realize the benefits of long-term savings, patience and consistency are essential. Just because the benefits are not immediate, don’t overlook them. This could lead to unnecessary stress and regret in the future.

Why Ignoring Either Side Can Hurt Your Financial Plan

Efficient savings choices aim to balance immediate needs with future goals. If you focus only on the present, you risk jeopardizing your future security; if you focus only on the future, you will miss what life offers today. 

You might not be able to earn as much in the future due to age and health-related issues, and certainly, you will have to make that period financially secure. But certain experiences are better suited to youth, and you can’t ignore them either. For instance, building a family, embarking on an adventure trip, and participating in sports can only be done while you are young and healthy.

Always aim to strike a balance by setting your priorities. Divide your savings so you can secure your present and future finances without compromising too much.  

Emergency Readiness as the Foundation for Both

Life never goes as planned. No one knows for sure what the future holds for us. But we can be sure of one thing: there will certainly be ups and downs, because life hardly ever moves in a straight line. We need to make accommodations so that, when the time comes, we are not caught off guard. These unexpected events can disrupt both short- and long-term plans if we have not already thought of them. 

An important financial principle is to secure your immediate future first by building emergency funds and paying off debt, and then focus on growth by making investments that will help secure your future.

If, for some reason, you have not yet built an emergency fund, you can utilize the service of Beem Instant Cash. Beem Instant Cash offers an instant, interest-free small loan of up to $ 1,000. There are no verification delays, as it does not require your credit score. It will help you avoid high-interest loans, such as payday loans, during emergencies and bridge the gap between paychecks.

Using Savings to Separate Goals by Purpose

Life is filled with many wants and needs that we must save to fulfill. But it is not reasonable to save for all the goals in that same account. This will only create confusion and will be hard to track. It is better to use separate accounts and investment options for each financial goal to keep your financial records clear. 

For instance, you can save for emergencies in an account that you can access instantly. An education fund can be deposited in a tax-free 529 account, and retirement funds can be deposited in an independent Retirement Account (IRA) or a 401(k), both of which are government-provided and tax-free.

Beem provides a reliable savings option for both short-term and long-term financial goals. For short-term savings, you can use its high-yield savings account for up to 3 years. For long-term financial savings, it offers a host of investment options, including stocks, bonds, and CDs. Its services are reliable and easy to access, and it also provides free visual tracking and AI-driven suggestions to help customers make better investment decisions. Download the app now!

How to Allocate Money Between Short- and Long-Term Goals

Now, let’s answer the big question: how do we actually split our income? How much should we spend, and how much do we save? According to financial advisors, a 50:30:20 ratio is considered a good split. If 50% of your income covers your necessities, then 30% can be allocated to leisure spending, such as movies and weekend outings, and the remaining 20% should be saved.  

When you start saving, always prioritize resilience over optimization. Build your emergency fund first. Once you have enough in your emergency fund, you can move on to saving for short and long-term goals. You can either split it 50-50 or go for a 60-40 ratio initially, as fulfilling short-term priorities will give you better financial stability and fulfillment.

Savings are for your security, but if they put your present at risk, they are not worth it. Always prioritizing based on urgency, timelines, and income stability. Set goals and be consistent, but don’t be too rigid or hard on yourself; adjust allocations as life circumstances allow.

When to Shift Focus Between Short- and Long-Term Goals

Life hardly ever moves in the same direction. Achievements and setbacks are all part of life. You will need to adjust your savings accordingly. When there is a surplus, you can allocate more to savings; on the other hand, if there is an unexpected event, you can reduce allocations. The key is to be consistent yet reasonable in all life situations. Always prioritize present stability and peace of mind over future optimization. 

Keep reviewing your financial plan, track all income, expenses, and savings, and make changes as required. There are best practices, but no two people have the same financial setup, life circumstances, or choices. Identify which numbers work for you and save accordingly.

Read: Why Not Having Financial Goals Is a Mistake

Common Mistakes People Make When Balancing Financial Goals

As discussed, when it comes to saving, have a balanced approach. Long-term securities are important, but your present financial stability is crucial. Don’t invest all your savings in non-liquid investments like real estate.

Conversely, give long-term securities the respect they deserve by reducing unnecessary spending. If buying expensive cars and watches is eating up your long-term savings, you might regret it later. 

Another mistake people make is failing to review their goals. Revisit your goals at least once a year and adjust as needed. The college cost you predicted could increase, or the vacation fund could be overflowing. Keeping track is as important as saving itself.

A Practical Framework to Balance Both Goals

Let’s now look at the practical framework you can use to balance both short- and long-term goals efficiently. These practical steps will allow you to build a financial safety net for the present and the future. 

Step 1: List all your goals for which you will require financing, along with the amounts required.

Step 2: Divide them between short-term(1 to 5 years) and long-term(after 5 years) goals.

Step 3: Prioritize your goals (focus on resilience before optimization)

Step 4: Exercise the 50:30:20 rule and start saving critical short-term goals, such as emergencies and high-interest debts.

Step 5: Once critical short-term goals are looked after, split the savings 60-40 between short and long-term goals

Step 6: Make adjustments according to life circumstances.

Step 7: Track and review your goals and savings, and make amendments if necessary   

By using this practical framework, you will be able to focus on both. You might not be on track all the time, but be committed, consistent, and positive.

Frequently Asked Questions

Final Thoughts: Financial Balance Is a Process, Not a Formula

Managing your finances and building savings are habits that form over time and with consistency. First, recognize the importance of efficient budget management, then develop a plan that works best for you.

Recognize your short-term and long-term goals and start saving for them. Remember, both are equally important and will help you achieve financial stability today and in the future. The plan should be clear but allow flexibility, as circumstances never remain the same. As with your life, keep your plans dynamic and up to date by regularly reviewing and rebalancing them because flexibility is more important than perfection.

Emergency access and smart savings will reduce stress today while building savings for a stress-free future.

With commitment and consistency, and by following a practical financial framework, you can build a robust savings portfolio effortlessly.