In this informative article, titled “How to grow your savings and reach your short term goals faster,” Jean Chatzky explores various investment options for individuals looking to increase their buying power and achieve their short-term goals more quickly. While many people associate investing with retirement planning, Chatzky emphasizes that investing can also be beneficial for shorter term goals, such as saving for a new house, car, wedding, or education. By considering the time horizon, individuals can determine the best approach for investing their money. Additionally, the article highlights the importance of beating inflation and explores different investment options that can help preserve the value of one’s money over time. Whether it’s high-interest savings accounts, certificates of deposit (CDs), or short-term government or corporate bonds, Chatzky provides valuable advice for those seeking to grow their savings efficiently.
Determining your goals and time horizon
Pin down your short term goals
In order to effectively grow your savings and reach your short term goals, it is important to first pin down what those goals are. This could include saving for a new house, a vehicle purchase, a college fund, a dream vacation, or any other specific short term goal you may have. By clearly defining your goals, you will have a better understanding of how much money you need to save and what investment options will best suit your needs.
Calculate your time horizon
After identifying your short term goals, the next step is to calculate your time horizon. This refers to the length of time you have to save and invest before you need to use the funds for your goals. Determining your time horizon is crucial because it will help you determine the appropriate level of risk you can tolerate when choosing investment options. Generally, if you will need the money saved within five years, it is best to opt for lower-risk investments.
Investment options for short term goals
Lower-risk investments
When it comes to short term goals, it is advisable to choose lower-risk investments that prioritize the preservation of your buying power. Lower-risk investments are less likely to experience significant fluctuations in value and are generally considered safer options for short term goals.
Savings or money market accounts
Savings or money market accounts are popular options for individuals looking to grow their savings for short term goals. These accounts offer competitive interest rates and provide easy access to your funds. When considering savings or money market accounts, it is important to compare interest rates at different banks to ensure you are getting the best return on your investment. Additionally, online banks often offer higher yields, so it may be worth considering these options as well.
Certificate of deposit (CD)
Certificates of deposit (CDs) are another viable investment option for short term goals. CDs are time deposits that offer fixed interest rates for a specified period of time. They typically have higher interest rates than traditional savings accounts and can be a great option if you are willing to lock your money away for a certain period of time. When choosing a CD, it is important to find the best rates available and understand any penalties for early withdrawal.
Short-term government or corporate bonds
Investing in short-term government or corporate bonds can be a suitable option for individuals looking for low-risk investments. Bonds essentially involve lending money to the issuer, who promises to repay both the principal and interest at a fixed rate. Government bonds, in particular, may offer various tax advantages. It is crucial to research different types of bonds and understand the potential benefits and risks associated with each.
High interest rate checking accounts
High interest rate checking accounts can also be considered for short term goals. Although they may not typically be viewed as traditional savings vehicles, these accounts often offer significantly higher interest rates compared to regular checking accounts. They often come with certain requirements such as having a minimum balance and making a certain number of transactions per month. It is important to understand these requirements and find banks that offer high yield checking accounts.
Monitor and adjust your investment strategy
After selecting investment options for your short term goals, it is important to regularly monitor and evaluate your investment performance. This involves reviewing the progress towards your goals, as well as assessing the performance of the individual investments in your portfolio. If necessary, adjustments can be made to your investment strategy to ensure alignment with your goals and risk tolerance. Seeking professional advice may also be beneficial in managing your investments effectively.
In conclusion, determining your goals and time horizon is a crucial first step in growing your savings and reaching your short term goals. By identifying your specific goals and calculating your time horizon, you can tailor your investment strategy to meet your needs. It is important to explore lower-risk investment options, such as savings or money market accounts, CDs, short-term government or corporate bonds, and high interest rate checking accounts. Regularly monitoring and adjusting your investment strategy will help ensure you stay on track towards achieving your short term goals.
