Lesson 5 Planning for the Short- and Long-Term Future

What Is Your Goal?

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Everyone has unique goals, whether it's starting their own business, taking that dream vacation, or something else entirely. The possibilities are endless, but planning ahead is essential to make those dreams a reality. Take a moment to think about the goals you’re working toward—whether it’s saving for your education or planning for future earnings.

Start by calculating the cost of your education or training and compare it to your potential earnings over your lifetime. How will this investment today pay off tomorrow? Consider what you want to invest in, whether it’s a new laptop or something larger. Some goals will be short-term, like buying that laptop, while others will take years of saving, like purchasing a house. With the proper planning, you can manage short-term, medium-term, and long-term goals simultaneously, setting yourself up for success in each.

Emergency Fund: Preparing for Life's Surprises

At some point, everyone will face unexpected events—whether it’s a car breakdown, a surprise medical bill, or even a job loss. These things happen often when we least expect them. That’s where an emergency fund comes in. A well-thought-out financial plan helps you build a safety net that will keep you afloat during life’s financial storms.

What is the ideal emergency fund? To start with, $1,000. A lot of life's little unexpected expenses can be more than covered with that amount. But the gold standard is between three- and 12-months’ worth of essential expenses. This will vary depending on your situation. A single person with a low cost of living, little to no debt, and a steady job can err on the smaller side. Someone with a lot of debt, variable income, and dependents may want to aim for 12 months.

By planning ahead, you can ensure you’re prepared for those sudden expenses or unexpected interruptions in your income, like illness or job loss. If you start saving now, you'll have the peace of mind that comes with knowing you have funds available to cover whatever life throws your way.

Smart Saving Strategies

Two key strategies to help you build that emergency fund are paying yourself first and using sinking funds.

Pay yourself first means prioritizing savings before spending on things you want. You dedicate money to your savings, investments, or other financial goals the same way you dedicate money to an essential expense like your rent or mortgage payment because those things are just as important and should be highly prioritized. This ensures you’re always putting money aside for the future rather than spending it all in the present.

Sinking funds are another great tool. They involve setting aside a small amount of money each month for a specific goal, such as saving for holiday gifts, a vacation, or any other planned expense. By breaking down larger expenses into manageable monthly amounts, you can save without the stress of trying to come up with a lump sum all at once.

With these strategies, you’ll be ready for life's surprises and more in control of your financial future.

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