By now, most people know they need to have money saved for emergencies. It is important to have three to six months of expenses in case something happens. Your emergency fund is a short-term goal. People also know that they need to be saving for retirement. Most understand that Social Security just won’t cover the expenses. For people 50 and under, retirement is usually a long-term goal.
What about intermediate-term goals? An intermediate-term goal could be a new car, a house, or a wonderful vacation. It could be anywhere from 2 years to 10 years down the road. How do you save for this?
A simple way to save for intermediate-term goals is through a monthly investment into a mutual fund. Anytime you have a little extra money lying around, put it into that fund. There is no IRS penalty for taking this money out, but there could be capital gains taxes. But the important thing is you have access to money when you need it! It can also be a backup to your emergency fund! Keep in mind that mutual funds are not guaranteed and may have a sales charge. You can lose your money, so it is important to pick a fund that meets your needs.
A few summers ago, both air conditioners in my office quit working. I own my own office building, so this was my problem. I am the landlord! Since I live and work in Las Vegas, this problem was a BIG problem. These were old units and it just didn’t make sense to repair them, so I replaced them at a cost of $11,000. This was $11,000 I wasn’t expecting to spend. I paid for the new air conditioners out of my emergency fund, but that left the emergency fund uncomfortably low. So I took $11,000 out of my intermediate-term fund and replenished my emergency fund.
The next big purchase I made was a sports car. It was time for my midlife crisis and I wanted something fun to drive. This is where my intermediate term fund came in. In my case, it didn’t pay for the whole car, but I was able to pay it completely off within one year. If I didn’t have that intermediate term fund, I would have car payments for years.
What kind of 2 to 10 year goals do you have? Do you want to travel somewhere? Buy a car? Remodel your house? Ask us how we can help you fund an intermediate term goal.
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