Balancing a long-term financial plan with short-term goals can be stressful, often seeming farfetched. This article will explain financial goals, how to identify long-term plans and short-term goals, and offer five strategies to help you balance them, making this process less daunting.
What is financial planning?
Financial planning is the process of managing your finances to achieve personal financial milestones or achievements. Financial planning involves setting financial goals, creating a plan to achieve those goals, and reevaluating and making adjustments to that plan as needed.
What are financial goals?
Financial goals are specific objectives that individuals set to manage their finances and achieve specific financial outcomes. The goals set provide direction and purpose for financial planning. The goals can be categorised into short-term, mid-term, or long-term financial goals.
Short-term goals vs. long-term financial planning
The main differences between short-term goals and long-term financial planning lie in their timeframes, focus, and the strategies used to achieve them. Main differences;
- Time Horizon: Short-term goals are usually immediate and near-future goals, whereas long-term financial planning focuses on achieving goals that are many years away. For example, short-term goals can be saving a specific amount of money in a year, while long-term goals can be setting up a retirement account.
- Adjustments: Short-term goals often require more frequent adjustments based on immediate financial circumstances. Whereas long-term planning involves periodic reevaluation and adjustments, however, the focus remains on achieving the set objectives.
Please note that both short-term goals and long-term financial planning are significant components of a detailed financial strategy that ensures that immediate needs are met while working towards future financial security and major life aspirations such as building a retirement fund, purchasing a home, or having a diversified investment portfolio.
How can you determine what your long-term and short-term financial goals are?
To help you determine what your long-term and short-term financial goals are, you need to thoroughly assess your current financial situation, assess what your future aspirations are, and determine what your values are when it comes to finances. Here are a few practical tips:
- Always Write: When you document your goals, it makes them more tangible and helps you stay committed to the goals while still keeping you accountable for achieving them.
- Prioritise: Set the goals in order of importance, then determine which goals are most important and urgent to address first. This helps you easily make adjustments.
- Seek Advice: Consult a qualified financial advisor for personalised guidance that benefits your current financial situation.
- Flexibility: Life circumstances can easily change, so be ready and prepared to make adjustments to your goals and strategies as needed.
By simply following these steps, you can easily determine and prioritise your financial goals, which in the long run will allow you to create a balanced approach to your finances that caters to both your short-term needs and long-term aspirations.
5 strategies to balance short-term and long-term financial goals?
To balance short-term and long-term financial goals, one needs to have a strategic plan and tremendous discipline. Here are five simple yet productive strategies to help achieve balance:
1. Budget
● You need to create a budget that allocates funds for both short-term and long-term goals. For example, allocate a portion of your monthly income to an emergency fund that caters to short-term goals and another portion to a retirement account that caters to long-term financial planning.
●You can use the 50/30/20 budgeting rule, which allocates 50% of your income to your needs, 30% to your wants, and 20% to your savings and debt repayment. You do not need to stick to those specific percentages. You can adjust the percentages as necessary to fit your financial situation and, as a result, cater to both short-term and long-term goals.
2. Emergency Fund
●You need to prioritise short-term financial security. You do so by establishing an emergency fund that contains 3-6 months’ worth of living expenses. The fund will provide a financial cushion for unexpected expenses and, as a result, allow you to avoid shifting away from your long-term goals.
● You can set up separate accounts by keeping your emergency fund in a separate account from an easily accessible savings account to avoid using the money set up for emergencies for non-emergencies.
3. Automate savings and investments.
●Set up automated transfers to both short-term and long-term savings accounts. For example, you can automate a set monthly contribution to a high-yield savings account for short-term goals and a retirement account for long-term goals. You can read more about the different types of savings accounts in one of my other articles titled “Adulting Finance Talks: Investing for Beginners” under the subheading “Investing Options for Young Adults.”.
4. Diversify your investment portfolio.
● For short-term investments, you can use low-risk, liquid investments to cater to your short-term goals, such as high-yield savings accounts or money market accounts.
● For long-term investments, you can invest in diversified portfolios that include stocks, mutual funds, or real estate. These investment options have higher growth potential over time but are not as great as short-term investments because they can be more volatile.
5. Regularly re-evaluate and adjust your plan.
● Schedule periodic reviews, You can do so by conducting regular financial reviews, at least annually or bi-annually, to assess progress towards your goals. When and where it’s needed, adjust your budget and savings rates based on changes in your financial situation or goals.
● Re-evaluate your goals periodically because life events such as marriage, having children, career changes, or health issues may require you to make adjustments to your financial plan.
Financial planning can help individuals manage their money more effectively, reduce financial stress, and ensure that they have the resources needed to meet their future needs. By using the abovementioned strategies, you can effectively manage your finances to achieve a balance between immediate short-term goals and long-term financial goals and, as a result, ensure financial stability and growth.
Remember to seek professional advice from a qualified financial advisor to create a tailored plan that addresses both short-term and long-term goals based on your specific circumstances and financial objectives.
