Dec 3, 2018
The Stash Way: Think Long TermBy Jeremy Quittner
Go long! Short-term spending can really interfere with your financial plan.
Life is full of temptations. And sometimes it’s hard to say no to things you want in the moment.
Maybe you want those cool boots, or slick sneakers, or even a shiny new car. And you’ve got the money now, so why not just spend it? (Worse, you might be tempted to pay for things using a credit card or some other type of consumer loan where you could wind up paying interest.)
The problem is that short-term spending can really interfere with your long-term saving goals.
Here’s how to tackle the problem.
Let’s talk goals
You can get around the desire to impulse spend by setting up a financial plan, which should include setting up a budget that includes putting aside a portion of your income every month toward savings.
Then it might be helpful to divide your savings between short term, long-term and longer-term goals.
- Short term goals might be an emergency savings fund, a new car or a vacation, even the occasional impulse purchase.
- Long-term goals might be paying for a college education or buying a house.
- Longer-term goals include saving for your retirement.
Good to know: Short term savings are best kept liquid, in a bank savings account where you can access them quickly if you need them. The downside of a bank account is that most tend to pay low interest.
You might consider setting up a brokerage account to meet your longer-term goals, since you want the money to grow, and won’t be needing the money right away. A brokerage account will let you invest in stocks, bonds, funds, and other securities that could earn you more money than a basic bank account.
The value of thinking long-term
In contrast to short-term goals, you may want to consider putting your money into an investment account for your longer-term goals like retirement. Two of the most common investment accounts are a traditional or Roth Individual Retirement Account (IRA), which anyone can set up, and a 401(k), which is a workplace plan that some employers offer.
Prioritize retirement savings
Retirement saving is perhaps the hardest thing of all to keep in mind. In fact, some 40% of consumers have no retirement savings at all. That’s because it can seem so many years away, that time in your life where you’ll no longer have to work.
It’s important to keep in mind that investing in stocks, bonds, and funds always carries the risk of losing money.
Over the years, however, market gains have outpaced standard savings rates in bank accounts. Looking ahead, experts expect markets to return about 5%. With the power of compounding and regular investing, you have the ability to build wealth for the financial future you want.
Auto-Stash toward your goals
No matter if you’ve got short-term goals (like an emergency fund) or long-term goals (saving for retirement), automation is your friend.
Tools like Auto-Stash will help you invest money automatically each month.
While some experts recommend trying to put aside up to 20% of your income each year, you can start with a small amount, maybe 5%, and then increase that amount over time.
If you get a raise, rather than spend the extra money, attempt to save the extra income.
Stick with The Stash Way
Investing for the long-term is part of the Stash Way, our guide to helping you achieve financial wellness, encompassing smarter budgeting and saving, a diversified approach to investing, as well as planning for the future with retirement accounts and insurance.
Now you’re ready to make a plan. Nice!