When you’re making a budget and trying to save, you usually take short-term goals into account. These are goals you have within the next few months or years that might require financing. For instance, if you have a vacation planned, you’re getting married, or expect to make a large purchase like a house or a car, these are short-term goals. Since you’re working with a distinct time frame, it’s important to use safe investment strategies, such as putting your money into a high-yield savings account, so the money is there when you need it.
Key Takeaways
- Short-term goals are clearly defined goals that require funding within a few months or years.
- To finance short-term goals, you’ll want to make safe, low-risk investments that offer a guaranteed return and are easy to access.
- Examples of short-term investments include high-yield savings accounts, money market funds, certificates of deposit (CDs), and bonds.
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Understanding Short-Term Financial Goals
A short-term goal is one that you plan to reach within a few months or years. You may be actively saving for a short-term goal, such as:
- A home renovation
- A large purchase, like a car or a down payment on a house
- A big trip
- A wedding
- An emergency fund
- Paying off existing debt
Tip
To set a short-term goal, be specific about what you’re saving for and how much you plan to save. Having measurable objectives can help you meet them.
Characteristics of Safe Investments
Since you’ll need to access your money within a short timeframe, you want to save it in a safe investment where there’s little risk of loss. A safe investment should be low-risk and offer stable growth. Plus, you should be able to access the money quickly if needed.
Types of Safe Investments for Short-Term Goals
Feel free to choose one type of investment or contribute to a combination of them—whatever strategy you’re comfortable with.
High-Yield Savings Accounts
A high-yield savings account is a type of savings account with interest rates that are 10 to 12 times higher than rates for traditional savings accounts. Online financial institutions offer some of the most competitive rates, and the accounts are easy to open. Your deposits are insured by the Federal Deposit Insurance Corp. (FDIC) just like traditional savings fund accounts.
Money Market Funds
Money market funds are mutual funds that allow you to invest in liquid, short-term investments. These are low-risk investments protected by the Securities Investor Protection Corporation (SIPC). As with high-yield savings accounts, you maintain easy access to your funds.
Certificate of Deposits (CDs)
When you open a certificate of deposit (CD), you select a term for a guaranteed return. Terms range from months to a few years, and the interest rates are typically higher for longer terms. Although interest rates are competitive, you may be penalized if you want to withdraw your funds before the term is up. That’s why it’s important to choose a term that aligns with your goal.
Short-Term Bonds
Corporations and the U.S. government issue short-term bonds, which are debt securities. They’re usually seen as being safer than stocks because you’re essentially giving a short-term loan to the government or corporation in exchange for a fixed rate of return.
Note
Treasury bonds are another safe investment option, although they typically mature in 20 or 30 years.
The Bottom Line
When you’re saving for a short-term goal, it’s important to set achievable financial objectives and contribute to savings. You want a stable return on your investments and easy access if you need to withdraw funds quickly, which is why a high-yield savings account, money market fund, certificate of deposit, or short-term bonds are good options to consider.