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Charné is a Registered Tax Practitioner and has written several magazine articles with financial related themes since 2006. She is a known finance and tax expert working as an adviser at lemons into lemonade financial planners cc.
Short term financial goals are goals of a financial nature that you want to achieve within the next year or three.
To reach a level of financial security where you feel financially free and independent, you must learn how to set up goals because :
1. it forces you to plan ahead financially so you can work towards a specific end result;
2. you tend to save more;
3. it puts your monthly budget in perspective which makes it easier for you to follow a budget; and
4. you limit excessive debt.
Goals can be divided into three groups, namely short term, medium term and long term goals. An example of a short term financial goal is to save up for a pair of expensive sunglasses or for a short holiday. An example of a medium term financial goal is when you save up for a swimming pool. Saving for your retirement is an excellent example of a long term goal.
Here are 5 things you need to know about short term goals:
1. How you save for it. The money you save to achieve your short term goals must be available on relatively short notice. Normally bank products like money market and fixed deposit accounts work the best.
2. The importance of short term goals. Short term goals are not necessarily more or less important than medium or long term goals, however I have found that as people reach their short term financial goals, it builds up their financial confidence to set up and achieve medium and long term goals more successfully.
3. What you earn and can save each month, influences your goals. To determine whether it is a short, medium or long term goal, you have to know what amount you have to save for that specific goal and how long you will be able to save for it with your specific salary or income.
With some goals you may want to reach them in two to three years, but it may not be financially possible and it will then be moved from being a short term goal to being a medium term goal. A good example is an overseas holiday that may be too expensive for you to reach as a short term goal.
4. The importance of choosing and prioritising your short term goals. It is also important to realise that you may not reach all your current short term goals at the same time. What you have in your monthly budget to put away for goals, will determine what you can address now and what goals may need to wait to a later stage.
In such a case, you will need to re-prioritise your short term goals. This means you give more attention to goals that you feel are, for now, more important. Holidays may initially be less important than buying household appliances. Another example is when you cannot afford to install an alarm system at your house and also put up a fence at the same time. You will first do that you think is more important in your specific circumstances.
5. Short term goals will differ from one person to another. If you are married, your short term financial goals will be different from the goals of a single person. In the same way, a person’s short term goals who have three children will be very different from a person’s short term goals who only has one child.
There is never a right or a wrong. Each person’s financial priorities are different and therefore each person’s short term goals will also be completely different.
Examples of short term goals:
• Short holidays or weekend get aways.
• Paying off store accounts or credit cards.
• A pair of expensive sunglasses or a laptop, smartphone or high quality camera.
• Household furniture or appliances like a couch, fridge or washing mashine.
• Annual expenses like your dog or cat’s visit to the vet.
• Expenses that you only have every two years like replacing car tyres.
• Small renovations to your house for example replacing a carpet in a bedroom with tiles.
• Changes to an alarm system for example adding outside security beams.
• Buying a good quality bicycle or gym equipment.
• Purchase and installation of sound equipment for your house.
Here is a practical example of how you would go about reaching a few short term goals. Mrs Jenkins has set up the following list :
Short Term Goals (1 to 3 years)
Long weekend to Durban including flight
Amount: 5,500
Paying off store accounts or credit cards
Amount: 20,000
Laptop
Amount: 6,499
Sunglasses
Amount: 3,000
Washing machine
Amount: 4,899
Annual visit to Vet for dog & provision for vet costs at R1,000 a year
Amount: 3,600
Replace car tyres every two years (4 tyres at R900 each)
Amount: 3,600
Small house renovations (per room/ paint and material)
Amount: 6,000
Total : Short Term Goals
Amount: 53,098
*Please note that these amounts are examples and do not represent the actual costs of each item.
The total of Mrs Jenkins’ short term goals are approximately R53,000. For her to reach this goal in 3 years, which is 36 months, she has to save R1,472 per month. Prices increase every year so it will be better for her to save at least R1,600 to ensure Mrs Jenkins achieves all her short term goals comfortably.
Let us assume that Mrs Jenkins cannot afford to save R1,600 per month while she has debt on her store cards. She only has R1,000 per month available. She needs to go back to her list and remove the goals that can wait for later. The new list looks like this :
Short Term Goals (1 to 3 years)
Holiday to Sister in Gauteng for 5 days (Reduced)
Amount: 3,000
Paying off store accounts or credit cards
Amount: 20,000
Laptop
Wait
Sunglasses
Wait
Washing machine (Keep on the list – a priority)
Amount: 4,899
Annual visit to Vet for dog & provision for vet costs at
Amount: 3,600
Replace car tyres every two years (Tyre shop says for now only front tires needs to be replaced)
Amount: 1,800
Small house renovations (per room/ paint and material)
Wait
Total : Short Term Goals
Amount: 33,299
To reach this goal of R33,299 in 36 months (3 years), Mrs Jenkins has to save R925 per month. This is now closer to her budget of R1,000 per month.
Before you start saving towards your short term goals, you need to have at least two things in place:
- A workable budge
- An emergency fund. An emergency fund are cash savings that you have quick access to and you need to have about six months’ of your income in this fund.
When you are in the process of setting up goals, whether they are short, medium and long term financial goals, you must make sure that your goals and the time period you want to achieve your goals in, are flexible. We can plan and save for many things but sometimes life’s circumstances may force us to change our plans. Do not be discouraged when you have to delay one or two goals with a year or two. It’s normal to adapt goals to accommodate unforseen events in our lives.
To reach a goal is a wonderful feeling and it will motivate you to continue to set new short term goals every few years. This will help you reach financial freedom.
This article provides general guidelines and does not contain specific advice.
