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A Financial Goal Timeline

Make a list of the financial goals you have, and you'll notice that they have very different timeframes. Some will become a reality in a year or two. Others may take a few years. And still others (though sometimes the most important) are decades away.

What's short term for one person may be long term for others. If your daughter is sixteen, having enough saved to pay for college expenses is a short-term goal for you. But if your sister's son is five, she may have the same goal but a much longer time horizon to accomplish it.

Why Time Matters

The amount of time you have to meet a goal affects your focus on it, but it also influences the specific investment strategies you'll use to achieve it. What's more, you probably have a few different goals, and prioritizing one goal over another one will have a direct impact on your progress.

For example, maybe you're putting aside 10% of your income toward your various investment goals. If you're planning to make a down payment on a new home in the next few months, you might have to put most of your available cash toward closing and moving expenses. Can you still put money away for retirement? Maybe, but if you skip your retirement plan contributions for a few months and then get right back to it, your overall plan probably won't be doomed.

In other words, your priorities might make you decide to increase the amount you're spending right now to meet a near-term goal. But, as long as you go back to investing for your longer-term commitments as quickly as you can, you can probably catch up.

Timing also directly affects the level of investment risk you will need to take or can afford to be comfortable with. For example, it's probably not a good idea to put your down payment into a risky investment when you're otherwise ready to buy. But you might be eager to invest more aggressively in your IRA if retirement is still a long way into the future.

Short Term (Under Two Years)

It can be challenging to accumulate the money you need for a short term goal while still covering your regular living expenses. At the same time, it's often easier to be motivated to save and invest for that goal since the reward is within reach. Another thing - the effect of inflation may be minor when you're spending your money fairly soon. Plus, it's relatively easy to estimate the actual cost of your short term goal. That gets much harder the further into the future your goal is.

Medium Term (Two to Ten Years)

Some financial goals take a little longer, and you may need more than a year or two. The list of goals in this category is long and varied. Maybe you want to go back to school to help advance your career. Perhaps your kids will be reaching college age, or you want to buy a larger home. Or, you may want to start a business of your own. Unless you already have enough cash to keep you going until that business is profitable, your first task may be building a financial cushion that will allow you to devote yourself full time to your endeavor.

As energizing as a medium-term goal may be, you'll need to anticipate other demands on the time and money you planned to devote to it. Of course, you might choose to put all of your financial energy to meet that specific goal, promising yourself you'll catch up on the others later. It may not be ideal, but it's often realistic.

Long Term (Ten Years and Beyond)

Many people share the long-term goal of a financially secure retirement. Caring for an older family member or paying for your grandchildren's college educations may also be on your list for goals that live on the distant horizon.

It's sometimes easier to achieve long-term financial goals than short-term ones. That's because certain investments, like stocks, stock mutual funds, and stock exchange-traded funds (ETFs), have the potential to increase in value over an extended period of time. These investments, in spite of their growth potential, may be too volatile to use when you have a short window for accumulating money to meet a goal. Regardless of your time horizon, you'll always have the risk of losing some or all of your investment.

Whatever your goals, it's important to understand how your timeline can influence your investment strategy and how much risk you're willing to take on. It's natural to have multiple goals at one time, and it takes discipline to stay motivated and on track for your longer-term goals. Keep your eye on the big picture, have a plan in place, and know that your priorities may change and your goals may change along with them.