What Is Short-Term Financial Planning?
Most information about financial planning goes out of its way to emphasize its ability to help with long-term goals. This begs the question about what to do with short-term goals. There tends to be less information in this area, because it isn't as lucrative, primarily because short-term goals are not generally supposed to be funded with investments.
Other People Are Reading
-
Time Frame
-
The terms "short term" and "long term" are relative. Thus, it is difficult to put an exact definition on short-term financial planning. However, many people use either 24 months or 36 months as the length of time at which short-term financial planning ends.
Identification
-
Short-term financial planning is identified by specific strategies to achieve or help achieve goals that are to be met in the near future, typically 2 to 3 years out.
-
Misconceptions
-
Many people mistakenly assume that any goal beyond the establishment of savings require the purchase of investments. In fact, most investments make bad vehicles for meeting short-term goals because of their volatility. While it is very likely that an investment in stock portfolio will recover from any down turn and be up in 10 or 20 years, the same cannot be said for a term of 3 years. Thus, most investments are not suited for short-term financial planning.
Benefits
-
Because there is little time to accomplish short-term goals, there is no time to recover from mistakes or misunderstandings. Thus, short-term financial planning provides a way to see exactly what is required to achieve the goals and, if necessary, adjust the goals if they cannot be achieved. Short-term financial planning also helps prevent the use of funds on things which are not considered important, but whose purchase may cause the important goals to not be met.
Function
-
Short-term financial planning provides a roadmap toward achieving financial goals. A good short-term financial plan addresses factors like how much money needs to be saved, how much interest any savings need to earn, and how best to achieve both. An excellent short-term financial plan explores how the plan affects long-term goals as well.
Size
-
Because of the short time frames involved, bigger financial goals are not attainable by simply saving a certain amount each month. Thus, unless significant existing funds are used, short-term financial planning is best suited to goals costing no more than three or four times a monthly salary.
-
