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Short-Term vs. Long-Term Goals: Planning Your Financial Future

Short-term goals deliver quick wins, but long-term goals set you up for sustained financial freedom.

October 12, 2022

To achieve financial security, it helps to have a big-picture idea of what you’re aiming for. Setting and working toward milestones helps track your progress — but should you focus on short-term or long-term goals? 

It can be tricky to differentiate between the two, and knowing what to prioritize or how to balance them can be even more challenging. Ultimately, you need both. Short-term goals help keep you motivated, while long-term goals tend to have a more lasting effect on your financial wellness. 

To help you carve out a path for your financial life, we’ll take a look at short-term vs. long-term goals. We’ll look at:

  • What long-term and short-term goals are

  • How to set them

  • Examples of both types of goals

What are short-term goals?

A short-term financial goal is generally anything that takes less than two years to achieve. 

This is a helpful rule of thumb, but ultimately, deciding where to separate short-term and long-term goals is somewhat arbitrary. There’s no meaningful difference between a goal you achieve in one and a half years and one you achieve in two years and one month. 

Examples of short-term goals include saving for a wedding or paying off credit card debt. However, something that takes one person two years might take another person 10 years, so consider your circumstances when deciding what would be a short-term goal.

What are long-term goals?

Conversely, long-term goals are anything that takes more than five years. Think of these as the exciting, ultimate goals in your life. Examples of long-term goals include saving for retirement and paying off a mortgage.

However, the categories of “short term” and “long term” aren’t always enough. Some people prefer to incorporate medium-term goals as well. These goals typically take two to five years. Many career goals, such as earning a professional certification to increase your earning power, fall in this category.

Although the two time frames seem like opposites, they work together. Long-term goals shape your short-term goals. 

For example, if your long-term financial goal is to pay off $100,000 in student loans from earning your bachelor’s degree, you might create a short-term goal to build a monthly budget that allows you to pay extra toward that loan every month. In other words, short-term goals are your stepping stones toward bigger aims.

How to set short-term vs. long-term goals

The way you set goals matters. Having goals isn’t nearly as useful without a clear roadmap to achieve them.

Think about your long-term goals first, then work backward to identify corresponding short-term goals.

For instance, if you want to retire when you’re 60, you could set short-term goals to save X amount of money each year to build up a large-enough nest egg.

When you set goals, you should also consider your individual financial circumstances. If you have an urgent goal like paying off debt, this is something you’ll want to prioritize.

To connect everything together, it can be helpful to speak with a financial advisor. They’re particularly beneficial if you have a complex set of circumstances. Maybe you need to know which debt to pay off first or how to juggle different goals.

Still, there are some broad principles to help you get started. 

SMART goals

The golden standard of goal-setting is to use SMART goals, an acronym that says your objectives should be:

  • Specific: Outlined without ambiguity

  • Measurable: Possible to measure with (usually quantifiable) criteria

  • Achievable: Realistic enough for you to stay on track

  • Relevant: Important enough to you to stay motivated

  • Timely: Clear timeframe in which you’re trying to achieve them

Would you find it easier to motivate yourself to “save lots of money this year” or to “save $5,000 this year”? Having exact metrics to go by is very helpful. Research has found that being specific leads to better results 90% of the time, as opposed to generic goals to “do your best.”

The SMART formula is particularly important for short-term goals since these are the ones you’re going to work toward daily. Since long-term aims are more about big goals and dreams, you can afford to be a little more flexible. They’re also likely to change over time.

Although we’re focusing on financial goals here, you can use the same roadmap for reaching personal goals or business goals.

Key short-term goals

We’ve already given a few examples of short-term goals, but here are two typical financial milestones you should consider setting for the near future.

Build an emergency fund

An emergency fund is the keystone of financial goal setting. It's what holds your whole plan together if something unexpected happens. Without an emergency fund, one unexpected expense — like a broken water heater, medical bills, car repairs or a job loss — can throw all your other goals off track. 

Your emergency fund should cover at least three to six months of living expenses. If you work on commission or rely on a variable income, you might want to save even more. 

Building the fund will take time. Create a budget and trim expenses, if needed, to a point where you can afford to save a portion of your income. 

If you also have debt to pay off, you can create a smaller emergency fund of about $1,000 first. Then, shift over to paying off debt and return to building that three- to six-month emergency fund.

Where you save your money for an emergency fund is important. This will be a large sum and has the potential to grow with interest. 

As of August 2022, the average checking account with a balance under $100,000 pays just 0.03% interest, while the average savings account and money market account interest rates are 0.13% and 0.14%, respectively. These are relatively low-yield accounts, but placing your emergency fund in a money market or savings account will allow it to grow more quickly while keeping it accessible. 

It's possible to earn even higher interest yields from some banks, particularly those without brick-and-mortar branches. For example, some online savings accounts pay more than 2%, regardless of your balance.


Open a life insurance policy

When you take out a life insurance policy, you ensure your dependents receive a payout if you pass away and can no longer provide for them. This typically takes the form of a cash lump sum, which acts as a safety net to replace your income.

As with an emergency fund, a life insurance policy is an essential way of protecting yourself and those who depend on you. Nobody wants to think about worst-case scenarios, but we never know what could happen tomorrow.

Yet 106 million U.S. adults don’t have adequate life insurance coverage — or any coverage at all.

Making monthly payments can seem like an unnecessary luxury if you have other financial responsibilities. But, if you have a family, it’s particularly important to consider. Plus, the younger (and healthier) you are when you start your policy, the cheaper it will be since you’re deemed low risk. You can often sign up for a fixed-rate policy that lasts up to 40 years.

Key long-term goals

Now, let’s take a look at the bigger picture. The short-term goals we’ve examined don’t exist in isolation; they help you work toward longer-term goals. Here are some of the most important.

Pay off debt

Whether it's credit cards, student loans or personal loans, interest charges on your debt add up over time. You can avoid this by making one of your long-term goals to be debt free. 

If your debt is relatively small, you might achieve this in a shorter amount of time. However, with the average American having more than $5,700 in credit card debt as of the first quarter of 2022, many people will need five or more years to pay it off. If you only pay the minimum payment, it will take you even longer to pay off your debt and cost you thousands of dollars in interest. 

Create a plan to pay off this high-interest credit card debt. You may even consider: 

No matter what process you choose, getting out of debt is a crucial long-term financial goal. 

Save for a down payment on a home

Homeownership comes with risks, like repairs and potential depreciation, but it remains a big piece of the personal-finance puzzle. Being a homeowner helps you build equity and may boost your credit score since it diversifies your credit profile.

Making a sizable down payment helps you get the best loan terms. Some home loans allow down payments of 3% or less, but these often require pricey private mortgage insurance (PMI). PMI is insurance that protects the lender if you default on the mortgage, and the monthly premiums can cost you hundreds of dollars.

Set a firm budget for your future home and create a long-term goal to save 20% for a down payment. With 20% down, you can avoid PMI and get more favorable loan terms.

Like your emergency savings, put this cash in an interest-bearing account, so it grows over time.

Plan for retirement

As far as long-term planning goes, savings goals don’t get much more forward-thinking than retirement. The first step here is to work out how much money you need and how close you are to that goal. Then, you can get there through different retirement plans, which is a perfect example of how long-term objectives ultimately need to be broken down into smaller goals.

Many employers offer a 401(k) plan and may match a percentage of your contributions to help boost your retirement savings. Some employers are more generous than others, but it's common for employers to match 50% to 100% of your contributions for up to 6% of your yearly salary.

After maximizing your employer contributions, focus on reaching the 401(k) contribution limits to build your balance quickly. In 2022, for example, the 401(k) contribution limit is $20,500. 

Once you've maxed out your 401(k) contributions, you may opt to open an IRA to enhance your retirement savings further if needed. 

Most individuals choose either a traditional IRA or Roth IRA. As of 2022, you can contribute up to $6,000 per year to an IRA. If you’re 50 or older, you can contribute up to $7,000.

You fund a traditional IRA with tax-deductible contributions (though contributions and deductions can be limited if you have a higher income and a retirement plan at work), and you pay taxes on all withdrawals in retirement. 

With a Roth IRA, you make contributions using your after-tax income, but the IRS doesn't charge income tax on withdrawals once you retire. Roth IRA contribution limits may also be limited based on certain tax situations and income thresholds.

SEP and SIMPLE IRAs are also available. SEPs are typically used by self-employed individuals and small businesses. As of 2022, they have a personal contribution limit of $20,500. Businesses without any other retirement savings plans may offer SIMPLE IRAs, which allow for both employer and employee contributions, like a 401(k). As of 2022, employees with these plans can contribute up to $14,000 per year.

A final option is a health savings account (HSA), which allows you to set aside tax-free cash for health care while also helping to expand your retirement savings. If you use your HSA for any non-medical services or products, you're subject to a 20% tax penalty on that amount. But once you reach 65 years of age, you’re free to use any remaining balance in your HSA for any purpose, just like an IRA or 401(k). 

A stable financial future is yours for the taking

When you look at your long-term goals, it can be daunting to realize how much hard work is ahead of you to reach them. But, once you break everything down into smaller goals for the short term, you’ll see how achievable your dreams are.

Just remember to be SMART about what you’re aiming for and consider the factors that make your financial situation unique.

If paying off credit card debt is one of your long-term goals, you might find it beneficial to use a tool like the Tally credit card repayment app. Instead of juggling a few higher-interest credit cards with different payment dates and terms, Tally will consolidate everything into one lower-interest line of credit and make your monthly payments for you to help you avoid late penalties.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.