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03.13.2012 / Short Term vs. Long Term Savings

Saving money is a big deal. We recommend that you save money, as do Personal Finance columnists, bloggers and wealth management advisors. When you get past the very simple save money advice, you run into a host of issues...including where to put it, how to organize it and what to save for.

"Saving money is a big deal"

Today, we’re going to talk about what to save for – specifically, the difference between short term savings and long term savings.

Short term savings are often known as “Emergency Funds” and are designed to cover everything from a car breakdown, a surprise visit to the emergency room, or a lost job.  While short term savings, or emergency funds, often start out small, the recommended amount varies.  Some personal finance writers suggest saving between $1500 to $4,000 for emergencies, while others suggest that you stash away at least 3 months’ worth of “operating expenses” – the amount of money you spend each month on necessities – in case of job loss or medical leave.

Other types of short term savings could be saving in advance for big ticket items that you plan to purchase in a year or less.  If you do use short term savings to save for purchases, make sure you don’t find yourself dipping into your emergency fund – keep them separate. The key to short term savings is that they are easily accessible – a savings account that is tied to your checking account is a good idea.

The definition of long term savings varies depending on what you are saving for. The most common form of long term savings is the retirement fund – but you can also save over the long term for large items such as cars, housing or long vacations.  The key to long term savings is that they also remain separate from your short term savings or emergency fund.  Long term savings frequently go into IRAs, Retirement Funds, long term CDs and other funds that take time (sometimes years) to mature.  The money that you place into long term savings should not be easy for you to access – which will keep you from dipping into it for short term purchases.

Have a question about your short term or long term savings plan? Visit a First National branch to talk about your savings goals!

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