Chapter 2: Short-term Goals
Short-term goals are achieved in under a year. To determine the amount you will need to save for a good or service, look at what the cost is now – it is unlikely that the price will be that much different seven or eight months down the road. Once you know the total amount you need, determining the amount you need to save each month is easy - just subtract any amount you have already saved from the total cost and divide by the months until the desired achievement date.
Example 1
You would like to buy a new sofa nine months from now. You visit a few furniture stores and discover that the model you are interested in cost about $900. You have not saved anything yet. Therefore, you would want to save ($900 - $0)/9 = $100 a month.
Example 2
You would like to establish an emergency savings account within eight months. Unlike with the sofa, you can’t go to the store to determine how much you need. Instead, you want to look at what your expenses are – most experts recommend setting aside three to six months worth of essential livings expenses. You calculate your essential expenses at $1,000 a month. You would like to have five months worth of expenses in your emergency savings account and already have $1,000 in there. Therefore, you would want to save ($1,000 x 5 - $1,000)/8 = $500 a month. |