Meeting short-term goals

Because you plan to use the money you set aside for the short term relatively quickly, you’ll probably want to put most of it in savings accounts and investments that are liquid. Liquidity means that you can sell the investment easily with little or no loss of value if you need the money.

For example, say you bought a home and have been putting away money to renovate the kitchen. If you invested it in stock funds and the market took a tumble the week before you signed a construction contract, you might have to sell the fund shares for less than you’d expected.

In that case you might have to scale back your plans or take a loan to complete the project. But if you’d put that money into a highly liquid money market or savings account, you’d be able to withdraw it at its full value. And since you plan to spend your short-term savings in the near future, inflation won’t have much of an impact on its buying power.

Louise Yamada,
Managing Director,
Louise Yamada Associates

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