How To Plan For Short Term Goals
Short-term goals are generally defined as those that may be achieved in one year to three years time frame. In order to meet this type of goal, try these three strategies:
- Understand how much you need to save to meet the goals
- Set aside a certain amount of money each month
- Invest in low risk short-term vehicles with high liquidity
Prioritize your goals
The problem with short-term goals is that there are generally too many. Some of you goals might be to pay off your credit cards, save for a home or car down payment, save for a dream vacation or even holiday expenses. In this case, it's important to prioritize your goals to help ensure that the most important ones are met first.
Understand the monetary impact of your goals
First get a good understanding of what you need and what it costs today. Then calculate its future value based on your time frame and the expected rate of inflation. The table below shows some examples.
|Short term Goals (< 3 years)||Time frame(Years)||What it costs today (Rs)||Rate of Inflation||Cost after your time frame (Rs)|
|Saving for car||2||Rs.200,000||6%||Rs.225,432|
|Down payment for house||3||Rs.1,500,000||10%||Rs.2,022,273|
If inflation is not taken into consideration you may end up falling short of your goals since today's prices are not going to be applicable in future. Another important factor to consider is that different goals may require different rates of inflation; like in a booming property market inflation in real-estate is going to be much higher than normal.
Use this inflation calculator to estimate how the costs of your goals are going to change over the time frame of your plan.
How much do you need to save?
Now that you understand how to calculate what you will need, you should figure out how much you need to save to meet these goals. Once a monthly savings target is calculated, you can look at your actual saving potential and prioritize/modify your goals as needed. Use the savings calculator here to estimate what your current assets will be worth at the end of your plan.
What adjustments do you need to make?
Based on what portion of savings you can contribute towards your short term goals, and how much you actually need to save for your goals you may need to make some adjustments. The car you want may have to wait for one more year or may be you can consider another car. Once you have matched up your saving needs with actual savings you are set. All you need to do now is EXECUTE on your plan. Now it is possible to create more savings out of your monthly cash-flow but that discussion is beyond the scope of this article.
Choice of Saving Vehicles
For short term goals we need "Low Risk", "High Liquidity" and "Reasonable return" options. Here is a list of possible options which fit the bill -
- FD according to your time frame (If there is some lump-sum amount available to fund the goal)
- Recurring Deposit Schemes
- Fixed Maturity Plans
- Liquid/Debt Mutual Funds
- Debt oriented Balanced Funds (If the target time frame is towards 3 years)
Setting and tracking goals is an important step in achieving financial success, so wish you luck with your goals and dreams. PLAN , EXECUTE and ENJOY.