Short vs medium vs long term financial goals: How do you save up for each type?

You’ve achieved your squad goals and couple goals, but what about your financial goals? They might be less sexy, but they’re very important to have in Singapore.

Things like cars, homes, and raising a family don’t come cheap in Singapore, so they do require considerable planning and saving in order to make them happen. Even after you’ve completed all those milestones, you also need to manage your own finances rather than rely on a pension to retire comfortably.

We’ll look at the different types of financial goals in Singapore and figure out how best to save for them.

Types of financial goals: short, medium & long term

It can be pretty daunting to think of ALL your financial goals at once. How on earth will you ever have enough $$$?

A useful way to break them up into manageable chunks is to split them by time frame, so you have short term, medium term and long term goals.

Financial goals	Time frame	Examples
Short term	One to five years	Home downpayment, wedding, having a child, renovation, study loan
Medium term	Five to 15 years	Your child’s university education
Long term	>15 years	Retirement

You can work towards achieving more than one goal at the same time. As investments have much stronger growth potential the earlier you start, it’s a good idea to identify goals and start working on them, however slowly, as soon as you can.

However, because the time frames are different, it’s best to adopt a different strategy for each type of goal.

1. Short term financial goals

Short-term goals are those for which you will need cash in a handful of years (approximately one to five). As these goals are not far off, you should be able to estimate quite accurately the amount you will need.

ALSO READ: 5 worthy financial goals to attain by 35

Examples of short term goals

Short term goals are often tied to life stages such as embarking on higher education, marriage or starting a family.

For instance, if you’ve been going out with your partner for some time and wish to get married and move in together, looming financial goals could include a wedding, a downpayment on a new home and renovation of your new pad.

Other possible short-term financial goals include further education, a sabbatical, a round-the-world trip after Covid-19, or a car so you can stop squeezing onto the MRT.

How to save for short term goals

With short-term financial goals, the key thing to be aware of is that you will need the money in a few short years’ time. We don’t recommend investing in stocks for short term goals — you’ll be screwed if there’s a market downtown just as you need the cash.

You also need to invest in a way that gives you the option to liquidate your investments on short notice, so illiquid investments like property are out.

In such a situation, your best bet is to turn to short term endowment or savings offered by banks and insurers. These plans will give you the option to select a precise payout date, and can give you an estimate of the kinds of returns you can expect.

What if time is really tight and you need the cash within a year?

Instead of letting it rot away in a conventional savings account, you can consider putting it in a robo advisor’s cash management account, a bank’s fixed deposit or a high interest savings account. Be sure to compare interest rates so you get the best deal for your situation.

ALSO READ: How I unlocked financial freedom

2. Medium term financial goals

Here, I’ve defined medium term financial goals as those for which you need cash in approximately five to 15 years.

Examples of medium term goals

A popular example is your child’s university education, since you will have about 18 years from his or her birth to prepare for it. Other goals could be upgrading upgrading your home or starting a business.

In addition, any short term financial goals start out as medium term goals if you start planning early enough.

How to save for medium term goals

The more time you have to save up, the more room you have to play around with higher-risk/higher-return investment methods. Depending on exactly how much time you have, you can consider investing in stocks, bonds, ETFs and unit trusts.

If you only have, say, five years, it would be wise to carefully time your entry into the market to give your money the best chance of growing in the near future. On the other hand, if you have over 10 years, you might wish to just go with a dollar cost averaging approach by throwing in a fixed sum every month.

You can also use a robo advisor or look for an insurance-linked savings product if you don’t want to have to manage your portfolio yourself.

You might want to set a calendar notification as the deadline for your goal approaches so you can shift your money into something less risky, like a fixed deposit, closer to the date. This will ensure that your money doesn’t get stuck in a market downturn just when you need it.

3. Long term financial goals

Retirement is one long term goal everyone in Singapore has. With a long horizon of over 15 years (or even several decades if you’re young enough), you get the most wiggle room to put together a varied portfolio that’s suited to your investment style and risk appetite.

How to save for long term goals

With this much time on your side, you are a perfect candidate for dollar cost averaging.

So, you might decide to put aside, say, $500 a month to invest in a selection of ETFs. You won’t have to worry about short-term fluctuations and can instead wait to profit from long-term gains over a decade from now.

If you wish, you can also put your money in relatively high-risk, high-return investments, such as by actively trading growth stocks for shorter-term gains.

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You can also look to buy investment property if you have the cash for it.

Other than residential property, you can also invest in commercial and industrial property, which do not attract Additional Buyer’s Stamp Duty (ABSD).

Property can be used as a source of rental income, and can also be resold at a profit if its value rises to a high enough level.

No matter what you choose, remember to balance out your portfolio with some lower risk investments such as blue chip stocks or a retirement plan from an insurer. And rebalance your portfolio every six to 12 months to make sure your asset allocation remains in line with your plan.

Remember to set SMART financial goals!

As with any other type of goal, your savings goals should be SMART — specific, measurable, achievable, relevant and time-based.

In other words, you don’t want vague goals that you cannot quantify, or that are unrealistic given your resources and time-frame.

One thing you will need to do is to figure out the amount of money needed for each goal.

This article was first published in MoneySmart.