Let’s be honest: saving for an emergency fund or for retirement can be a bit, well, boring. Maybe you don’t think so but I’m totally unenthused by those two (very important) things.
But the short-term and mid-term goals? That’s where I think the fun is. Maybe it’s because I like to daydream about all of the things that I can do someday soon. But these short-term goals and dreams are the things that make life exciting. These are the goals that create a big life.
We don’t want to save just to have choices when we’re 65. We want choices today as well.
While we’ve put our retirement saving on autopilot, with the no-budget, budget, it’s freed up our mental space to dream about things that aren’t so distant. Things that could happen in the next 2-6+ years.
And I dream about these things a lot.
As we’ve been reflecting on 2017 and planning for 2018, there are two short-term goals that get both Jordan and I really jazzed. Sometimes we have separate goals, and for us that’s fine. But this year both Jordan and I are fully on board with 2 goals that we are really excited to see if we can get to.
Once we got clear on our goals, another question popped up:
Where do we put this money?
The rules are pretty clear for emergency funds and retirement. Your emergency fund or money that you truly need in the short term should go into a savings account or money market account where it will stay safe and you have easy access to it.
Retirement funds or money that you need in 10+ years should be invested in a well-diversified fund (or funds), based on how much risk you want to take.
But these goals in the middle? There’s no one right answer. But there are a lot of great options which I’ll lay out for you here. And I’ll also fill you in on exactly where we’re going to put our money and how we made those decisions.
Make more goals (Erica only)
I work for myself. And while it’s great and I absolutely wouldn’t trade it, income can be inconsistent. I have two steady jobs that bring in roughly the same each month, but just cruising along with those is a recipe for disaster because if I lose one, I’ll be straight back to my corporate life.
My goal this year is to make more by picking up one new job each month (minus March & April because I’m trying to give myself a little bit of time to adjust to a baby. All tips welcome and appreciated).
These jobs can be writing or consulting, but I need to get out and pitch (groan).
As additional motivation, there’s no way we’ll reach our financial goals without me doing this, so it’s time to check my ego at the door and go look for more work.
Spend smarter & the happiness habit (both Erica & Jordan)
Sometimes I sound like a broken record, but we don’t really budget. But what we do instead is to adhere to buying only the things that make us the happiest, and cutting out the rest (need a refresher on that? Find it here.)
There are weeks where we’re great at this and there are other weeks where we’ll not even realize how much we’ve spent on stupid things until I look at our bank account and see that we have $10 left for the month.
This year, I think it would be fun for us to sit down and be honest about one purchase each month we’re thrilled we made, and one that was a downright bad decision. I can already feel myself cringing thinking back to my bad purchases of 2017.
The idea for this monthly reflection isn’t to feel bad about spending money but it’s to make sure we’re being mindful and seriously enjoying everything that we spend on. Expect total honesty each month about the good, the bad, and the ugly of our day to day spending.
24 Hour Money Makeover
5 Simple Steps to Live a Life You Love
Other examples of mid-term goals:
Tiny house not your jam? Freedom fund not at the top of your list? Here are some other examples of mid-term goals, those 2-10 year goals, that can be difficult to know what to do with.
- A down payment on a home
- A big vacation that you want to take in 2 years
- A 3 month sabbatical from your job
- Starting a new business
Our answers to the 2 questions and where we’re putting our money:
- How soon do I need this?
We’d like to have goal #1 saved in 1 year and goal #2 saved in 2 years. It’s a stretch, but we’re up for a good challenge.
2. What happens if the value drops and I can’t have it then?
With goal #1 (the freedom fund), I think we’d both be pretty heartbroken to not have this money ready in 12 months. Options and control mean a lot to us and this account is going to give us both.
With goal #2, honestly, nothing changes. We’ve already bought our home. This is an investment (or something fun for us to live in). We’re not 100% sure that we can get it through the permitting process. There are a lot of unknowns here and if we have to wait, we have to wait.
How we’ll save this money
Goals like these are the reason I preach buying happiness, rather than adhering to a strict budget. We’re not going to go line by line and set up a budget. We’re not going to stop buying things we love. (Like travel: we’re still going to Paris this weekend.)
Rather than adhere to a strict budget, we’re going to do other things to help us increase the gap between what we make and what we spend. We will do a couple of things like negotiating some of our expenses. (I negotiated our rent, which you can read about here. And the internet, phone, and insurance companies – I’ll be calling you soon.)
And we’re spending intentionally as well, buying the things that make us the happiest and cutting out the things that don’t. Yes, we’re going to Paris. But when planning out our trip, I decided that going to a baking school to learn how to make croissants wasn’t going to make me happier than our two goals. As a trade-off, I’ll skip the class and eat my bodyweight in croissants that come from a bakery.
Where we’ll put it
This is by no means advice for you and your specific situation. But I like to be really transparent and not just give you the textbook information, but how we’re using this in our life. With good information, you can make the best decision for your situation. We’ve done that with ours. So here it goes.
Goal #1: Freedom Fund
Since we want this in a short time frame and are not willing to weather the market ups and downs, we’re going with a very safe option. We looked at both CD’s and Savings/Money Market accounts. (again, a money market account is pretty much the same thing as a savings account, it just normally carries a slightly higher interest rate).
Our criteria for picking an option was: we want to be able to add to the balance monthly as we save, we want access to the money at any time, and we want it to be safe. With a CD you’re not able to add to the balance monthly – what you deposit initially is all that is allowed for that CD. And with most CD’s you don’t have access to the funds whenever you need them. You generally have to keep them locked up for the entire length of the CD (so a 2 year CD means you don’t have access to that money for 2 years).
Our pick: because we want access to our money and we also want to add to the balance monthly as we save, we chose to put our cash in a money market account. We set up a separate money market account with our bank that we created specifically for this goal.
Goal #2: Tiny House
As I mentioned, there is so much uncertainty with this goal. Will we be able to get permits? Will we still want to do it in 2 years? And we’re also not married to the 2-year goal timeline. If the market dips, we’re OK staying the course until it recovers (ie: not pulling our money out if it goes down).
Who knows – we may never actually build this thing and have the money sitting around for 8-10 years. We also already have a primary home, so we look at this as more of an investment/fun project. Because of that, we decided to be a bit cheeky with our risk.
Our pick: A little of this and a little of that. We decided to invest our money and monthly contributions into an Index Fund that divides our money between stocks and bonds. If you want more of an overview of these types of funds, Vanguard has a good description of their funds called “LifeStrategy Funds.”
Figuring this out actually didn’t take that long. Once we got clear on our goals, the money we needed, and our timeline, we had a really easy discussion about where we felt most comfortable keeping the money. And we’ve landed on a decision that feels really easy to now put into place and then set on cruise control.
I’m excited to see where we land in January 2019.
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