The time frame for achieving a goal can help you determine how to save for it. If it’s near-term, a safer means of saving, such as a savings account or CD, is appropriate. If the goal is years away, such as retirement, you may want to tolerate short-term fluctuations in the value of your savings for long-term growth. Other goals, such as paying for college, have savings accounts that are specifically designed for them.
It’s important to distinguish between different kinds of debt. If you have high-interest debt, pay if off first. If it’s a lower-interest installment loan — such as for a car, for example — continue to pay it off as scheduled. At the same time, though, you’ll want to be saving. It is oftentimes necessary to save money and pay off debt simultaneously and budget accordingly.
Constantly paying off debt, then going back into debt, can make saving money difficult. The best way to keep unexpected expenses from becoming high-interest credit card debt is to have an emergency fund set aside to cover them. Opening and contributing to a dedicated savings account that you can access in an emergency should be your first goal after paying off high-interest debt.
Most of us have several financial goals that we need to save toward simultaneously. For example, even as you contribute toward your retirement over the course of your working years, you will have shorter-term goals and needs that arise. Examples include new cars, education expenses, starting a family, etc. The time frame and nature of each goal will determine how you will want to save for it.
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