Short-Term vs Long-Term Savings

Short-term Savings

Your short-term savings is important because it gets you into the habit of saving for financial goals to enjoy in the near future. Short-term savings hold the money you set aside for those fun things you like to do to enjoy the fruits of your labor.

For instance, maybe you want to get good seats for a concert. Tickets will go on sale in six months, but they’ll cost $600. Start saving an extra $100 a month and you’ll have enough money available to buy the tickets when they go on sale.

Short-term savings provide the sense of gratification we receive by buying things, but keeps us from going into debt to do so. It also gets you into the habit of honestly evaluating and prioritizing your wants. Are those Manolo Blahnik really what you want? Well, after saving for several months, it will be clear whether you still want them or if it was just a potentially expensive impulse.

Long-term Savings

The long-term savings account is where you hold money for future investments. This account typically lays the foundation for your long-term financial plans, such as retirement. Get into the habit of “paying yourself first” and deposit money into this account every month. In other words, before you buy those shoes, or go to the concert, first make sure you have set money aside in your long-term savings.

Your target should be 10% of your total take-home pay per month. Try to increase the amount each month. Increase it gradually over time through automatic transfers from the account where you receive your income/salary to a savings account. You fund your long-term savings account after your bills are paid, but before the money goes into your everyday transactions.

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