Kyle Harpin, CFA, CFP®
Client Needs Research Analyst

On the road between Las Vegas and Telluride, the views are some of the best you can experience in the American Southwest. You'll pass through breathtaking mountain ranges, picturesque deserts, charming small towns and flashy big cities. But if your only goal is to get to from Point A to Point B as safe and fast as possible, you'll miss some of the breathtaking sights.

Your financial journey can be similar. While the bedrock of your financial strategy is likely enjoying the retirement you've dreamed of, it can be easy to become so focused on getting to your final destination (or not running out of money while you're there) that you forget to enjoy the journey. Whether it's a family vacation, home renovation, paying for a wedding or making a large purchase, these shorter-term goals can add a spice to life that make pursuing the long-term goals even more worthwhile. And just like you've set your GPS on a course for retirement, it's also important to be intentional about planning your shorter-term wants and needs.

Yet we often lose sight of being as intentional about shorter-term wants and needs as we are about our longer-term goals like retirement. As a case in point, the US Travel Association estimates that 768 million vacation days in the U.S. went unused in 2019 (that's before the pandemic), which means missed opportunities for dream vacations or time with family and friends. Additionally, many retirees struggle to give themselves permission to use the money they've spent so long setting aside. By incorporating a solid plan for achieving short-term goals, you'll be able to enjoy life now without compromising your future security. And this is valuable no matter what stage of life you're in.

Mapping it out

The first step is figuring out what your goal is, how much you want to spend on it and when you hope to achieve it. If you don't know exactly how much or when, that's okay. An estimate is enough to get you started. For example, maybe you'd like to make remodeling your kitchen a priority. To help you get an idea of the cost, do online research, ask friends who've had similar work completed or get some estimates for the work. This type of preplanning is useful no matter your goal. Next, consider how quickly you'd like the work done. If your plan is a few years down the road, you'll have a lot longer to save than if you'd like the work completed within a month or two.

This is a great time to have a conversation with your financial advisor because they can help you balance your short-term goal with your other goals and propose strategies to help get you there. Often people think their goals are out of reach and never consider the full suite of options at their disposal. Your financial advisor can walk you through many different options for balancing and achieving multiple goals, including some you may not have considered.

Fueling it up

When it comes time to pay for your goal, you likely have more options than you think.

  • Using savings or extra cash: Start by using funds you have intentionally saved for this goal. If that's not enough, then consider cash you may have that's above what you need for of your spending and emergency savings. Note: If your need is an emergency, use your emergency fund first; that's what it's there for. Your excess cash likely isn't earning very much, and it can be used to reduce the amount you'll need to raise from other sources.
     
  • Borrowing: If you go the route of borrowing, using the debt strategically is key. Ideally, you'll want to find a loan with a low interest rate and no or low fees. Also, consider attributes that can be easier to plan around, such as a fixed interest rate, a loan that amortizes and is paid off in a reasonable amount of time.

    Some of the most common borrowing options are credit cards, car loans, mortgages, home equity loans, personal loans and margin loans. You'll want to determine which of these is the best option for helping finance your goal. For example, if you're remodeling your kitchen, you may have thought of a home equity loan but may not have considered if a margin loan could have been a competitive option.

A savings example

Marc and Jessica (both age 40) would like a $40,000 kitchen renovation and to retire at 65 with retirement income of $80,000. Here are some scenarios for balancing $2,500 of savings per month for them.

A savings example chart image

Disclosure: Graphic is a hypothetical illustration of different saving scenarios.

Source: Edward Jones.

This chart illustrates three saving scenarios. The total monthly savings in each scenario is the same - $2,500. The difference: how it’s split between a kitchen renovation and retirement. In the first scenario, renovation is a priority, so $1,600 goes to that goal while $900 goes to retirement. Result: the goal of $40,000 for a kitchen renovation is met, while retirement would need to be postponed to age 66. In the second scenario, retirement is a priority, so $2,100 goes to that, while $400 is saved for the kitchen remodel. Result: the goal of retiring at age 65 is met, while only $10,000 is saved for the remodel. The goal in the third scenario: balance both retirement and renovation. So, $1,525 is saved for retirement and the rest, $975, goes to the kitchen remodel. The result: retirement comes a little later (age 65 1/2) and $25,000 is saved for the remodel.


Selling investments

Selling your investments can help you achieve your short-term goal, but you have to be willing to accept some trade-offs.

  • Costs: You'll want to consider whether the investments have a penalty or high costs associated with selling them.
     
  • Taxes: Connect with your financial advisor and a tax professional to determine how selling investments could affect your overall taxes. Also ask if selling may cause you to exceed key thresholds like those for Medicare Net Investment Income tax, Medicare IRMAA surcharges and Social Security taxability thresholds.
     
  • Mix of investments: Pay attention to the balance of your portfolio. Your asset allocation was set up to align with your goals and risk tolerance. If it does get out of alignment, make sure to rebalance it back to your personalized target allocation.

There are many options for paying for your short-term goals, and your financial advisor can help you work through which may be the best for you, while helping to minimize any impact to your longer-term goals.

Enjoy the ride

Your financial strategy is as much about the journey as it is the destination. So, bring your aspirations to your financial advisor and plan a strategy for achieving all your goals – both the long-term ones and the short-term ones that make the journey worth it.