How to Set Long-Term Financial Goals

What is a long-term financial goal?

A long-term financial goal is typically any financial objective that takes around five years or more to save for. ¹ For example, saving up for retirement would be a long-term financial goal because it usually takes years or even decades to accomplish.

Long-term goals are different from, say, saving money for your wedding or this year's holiday gifts. These types of short-term financial goals might take months or even a couple of years to save for, but not usually more than five years. Reaching a long-term financial goal requires more time and dedication, which makes reaching it even more special.

Examples of long-term financial goals

Everyone has different plans based on their lifestyle and budget, and their money goals will typically reflect that. Here are some common long-term financial goals to keep in mind as you start planning:

• Buying a house: Purchasing a new home or a fixer-upper could be a great way to invest your money and create a legacy for your family.
• Retirement: Planning for retirement helps you prepare for the life you want, whether that includes working less or not at all. If you can contribute to a retirement plan, you could start saving now to reap the benefits. Your future self will thank you.
• Paying off large debts: Paying off high-interest credit card debt or student loans can be rewarding. But sometimes it can take years to reach the finish line. Having a solid plan to pay off your debt could be a great long-term financial goal and open doors to so many more opportunities in the future.
• Saving for your child’s college education: Paying for your child’s college education could become more attainable if you start saving as early as possible. You could save small amounts while they’re young and gradually increase your savings over time until they walk across the stage at graduation.

Setting long-term financial goals

Now that you understand what a long-term financial goal is, you can take a few simple steps to set the goals you’d like to reach in the next five years and beyond.

Brainstorm which goals you want to focus on

Set aside some time to brainstorm the goals that matter most to you. Your goals don’t have to be perfect right now — this is just a time to get your ideas out of your head. You can use pen and paper, a notes app on your phone, or even a spreadsheet to organize your financial goals.

Once you have everything jotted down, you can organize your goals by importance. Deciding which goals matter most — and what you want to achieve first — can help you plan your savings more effectively.

Have an open conversation with your partner

If you manage your finances with a partner, consider creating and discussing your long-term financial goals together. You may have dreams of buying a house one day, but your partner may not want to settle down in one spot.

It’s also important for each of you to have your own set of goals in addition to your combined goals. Make sure to continue the conversation over time so you can adjust along the way. Working toward a shared future is easier when you’re both on the same page.

Make sure your goals are S.M.A.R.T.

It’s best to be strategic about each financial goal you set for yourself, especially if it’s long-term. One way to do this is to establish SMART goals:

• Specific
• Measurable
• Achievable
• Realistic
• Timebound So, instead of simply saying you want to save for a house, you’d make a detailed plan that checks off each of these boxes to make sure your goal doesn’t fall by the wayside.

Here’s an example of a S.M.A.R.T goal for buying a house:

Goal: Save up for a 20% down payment on a $300,000 house within the next 5 years.

• Specific: Save for a 20% down payment, which equals $60,000.
• Measurable: Track your savings progress each month.
• Achievable: Save $1,000 per month by cutting unnecessary expenses and setting up automatic transfers of your paycheck to a high-yield savings account.
• Realistic: Saving $1,000 a month is within your budget based on your current income and expenses.
• Time-bound: Reach the $60,000 down payment in 5 years.

When you have a solid plan for your financial goals, you’ll be more likely to stick to and reach each goal over time.

Create a budget and stick to it

Making a budget to track how much you earn and spend could give you a better idea of how much you can afford to save toward your long-term goals. Add up how much you make each month and subtract your monthly expenses to get an idea of what you have left over to realistically save each month.

Your budget can also help you reduce some of your nonessential expenses, like ordering takeout or holding onto subscriptions you don’t use. After you make some corrections, you’ll have a budget that works for your lifestyle and the goals you want to achieve.

Break down your goals into smaller goals

Breaking down your long-term money goals into smaller milestones could make them feel more accessible and keep you motivated throughout your journey.

For example, saving $100,000 for your newborn's future college education might seem overwhelming at first. But if you break that large goal into saving about $5,550 a year for 18 years, it may make it easier to start and track your progress. You can also break the savings amount down to $462.50 a month or $231.25 every two weeks to make it even easier to visualize.

Reward yourself along the way

Long-term financial goals can take time to accomplish, and you deserve to celebrate each milestone you reach along the way, no matter the size.

• Create a “milestone jar”: You can set up a jar to add a small amount (like a few dollars) to every milestone you reach and use the money to splurge or treat yourself to something special at the end of the year.
• Journal how you feel: Write down how reaching your milestone makes you feel so you can reflect on it if you ever get discouraged or when you finally complete your long-term goal.
• Celebrate with an experience: You can enjoy low-cost experiences like trying a new recipe with a friend, going on a hike or visiting a local museum to celebrate reaching your milestones.

How to achieve your long-term financial goals

Let’s review a few different ways to save money to help you reach your long-term financial goals.

Use separate savings accounts

Opening separate bank accounts for each of your long-term money goals is an easy way to keep track of your savings progress. For example, you can set up a dedicated savings account to put money toward the downpayment on a new home. Then, you could create another to save for your kid’s college expenses.

You could also opt for a high-yield savings account (HYSA), which typically offers a higher interest rate on the money you deposit than other accounts, which may help you reach your goals faster.²

Open a retirement account

Planning retirement is a great financial goal if you have the means to do it. Two common retirement accounts are the 401(k) and Roth IRA, each with its own benefits.

• 401(k): A 401(k) is a retirement account typically offered by an employer. Some employers may match the untaxed amount of money you contribute to your account.
• Roth IRA: A Roth IRA is a retirement account you can open through a bank or brokerage firm. It's funded with after-tax dollars, meaning you've already paid taxes on the money you contribute. While the money you save isn't tax-deductible, your investments grow tax-free, and you can make tax-free withdrawals in retirement.³
• Traditional IRA: A traditional IRA is another type of retirement account you can set up through a bank or brokerage firm. You use it to save pre-tax dollars, which means you can deduct your contributions from your taxable income for the year. Your investments grow tax-deferred, meaning you don't pay taxes on the earnings until you withdraw the money in retirement.⁴

Each option has unique factors to consider, such as annual contribution limits, so it's wise to consult a professional before opening a new retirement account to make sure you choose the best one for your needs.

Apply any financial windfalls to your long-term savings account

Everyone loves a little boost to their bank account. Extra funds, like an annual bonus, tax refund or an unexpected inheritance, may be tempting to spend quickly. Instead, consider using the money to help you meet your savings goals ahead of schedule. That annual bonus that just hit your account? Try putting it in a high-yield savings account and watch it grow.

Track your progress

Tracking your progress toward your long-term financial goals keeps you focused and motivated. You can use a spreadsheet or a budgeting app that automatically tracks your savings for you. These tools can also help you see whether your current strategy is working, so you can adjust if needed.

Revisit your goals over time

Remember, your financial goals are never set in stone. Life happens — whether it’s a shift in income or an emergency — so it’s perfectly okay to adjust to your long-term financial goals as needed. No matter where you are on your financial journey, taking the first step to save money is always a smart move.

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Sources:

1. https://www.bankrate.com/banking/savings/strategies-for-short-and-long-term-financial-goals/
   
2. https://www.nerdwallet.com/article/banking/high-interest-savings-account
   
3. https://www.nerdwallet.com/article/investing/what-is-a-roth-ira
   
4. https://www.nerdwallet.com/article/investing/what-is-a-traditional-ira