When you’re establishing your financial plan, the first thing you need to do is identify both your short-term and long-term goals. Identifying goals and a plan to support them can bring you assurance of a sound financial future. Without clearly identified goals and a supportive plan, there’s the tendency to mismanage your money with fruitless spending leading to the potential for financial trouble.

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Think of your goals as the foundation for your financial plan. Each financial goal should have a time horizon and can be a stepping stone for a future goal. Short-term goals differ from long-term goals usually in the sense of timing. Short-term goals are generally smaller in scope and dollar amount with a definite target date for accomplishing them.

Short-term Goal Example:

Short-term goals could be the purchase of household furniture, minor home improvements, saving for a car down payment, etc. But these short-term goals differ from the day-to-day household expenditures.

A short-term goal is one that you’d want to achieve in one to two years. Most investment advisors say your first short-term goals should be getting your financial house in order by eliminating credit card debt and establishing a rainy day fund. Intermediate-term and long-term goals include buying a house, starting a business, and retiring according to your own schedule.

Here’s how you can get started determining short-term goals and building a supportive financial plan.

Identify your financial goals

First, figure out what you want to achieve most in your life. This can range from buying a house to starting a business or retiring according to your own schedule. Without goals, any money you earn can easily be spent instead of being saved or earmarked for an important milestone or goal. As well as identifying financial goals, estimate the amount of money you’ll need to accumulate to reach each goal.

Prioritize each goal

How important is each goal? Should your first priority be to save and invest for your retirement? This means that before anything else, a portion or percentage of your paycheck is invested into a 401(k) retirement plan at work, an IRA or Roth IRA, on a regular basis. Only after that occurs does additional money get earmarked for other financial goals like saving for a house or new car.

Establish a time horizon for each short term goal

Figure out how many years it will take you to achieve each goal.

Short-term Goal Example:

You’d like to have enough money for a down payment for a new house in five years or in 10 years, you want to start your own business.

Assess your finances and eliminate credit card debt

Take a good look at your financial situation, including credit card debt, student loans, car loans, mortgages, etc. Before you start investing and saving for your goals, you might consider eliminating credit card debt that carries very high interest rates. Once all credit card payments are made, you can then take that same amount of money and invest it. All other debt such as student loans, car loans and a mortgage, tend to have lower interest rates and can be paid down while you invest in the markets.

In addition, if you have bought stocks or funds in the past and those investments still make sense, determine if they fit into your financial plan. Close brokerage and bank accounts you don’t need or use. Figure out how many years you have until retirement and the amount of income you’ll need.

Set up a rainy day fund

Once you pay off your credit card debt, your next short-term goal is to build up a rainy day or emergency fund. It’s generally a good idea to establish a rainy day fund before you invest for any other goal. Advisors recommend that people set aside three months worth of everyday expenses into such a fund. This helps build a cushion for unforeseen expenses like a car repair or replacement of a large household appliance. It pays to plan ahead. Also, try not to put large essential expenses on a credit card, because that will just put you back to square one.

Next short term goal is to adjust your spending habits

Your next short-term goal is improving your savings by cutting back on unwarranted spending. Reduce spending on things that are more luxury-type items and “wants” as opposed to “needs”. Cut back on eating out and restaurants and maybe try renting movies instead of going to the theater. Think of other expenses that you can eliminate, such as bottled water, magazines at the newsstand and your land-line phone at home. Try to use debit cards instead of credit cards as well, unless you plan to pay off your credit cards at the end of each pay cycle.

If you make small changes in your spending habits now, you’ll have more money to invest, eventually making a big difference in your retirement years.

Choose an investment advisor

Ask for help in setting up your financial plan. Experienced investment advisors will not only help you identify your goals and assess your financial situation, they will also pick investments that are best suited for your goals. Investment advisors are trained to find investments that fit your personality and risk tolerance and also take all aspects of your life into account (such as medical conditions or caring for an aging parent) when establishing your investment plan. Trusted investment advisors also perform consistent follow-up by monitoring your investments and making adjustments when needed.

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The important thing is to simply get started and determine your short-term goals. When you achieve your short-term goals, you’ll be able to move on to accumulating money for your intermediate and long-term goals.

What to do next

  • Identify your goals and set priorities. Tag each with a time horizon that is achievable.
  • Evaluate your financial situation and eliminate bad debt. Consolidate brokerage and bank accounts.
  • Set up a rainy day fund to cover emergency expenses. Avoid using a credit card for large necessary costs.
  • Cut spending on unnecessary and luxury items.
  • Engage an investment advisor to help you set up your investment plan.  The advisors with Financial Engines Advisor Center will work with you to identify your goals, both short and long-term, and help you choose investments that fit your specific situation and goals.