The new year is a great time to set and revisit your financial goals. Without clearly defined objectives and a plan for reaching these objectives, you are more likely to be undisciplined and spend money unwisely or save less than you should for financial priorities.

Emphasis tends to rest on your long-term financial goals – a secure and comfortable retirement, that dream trip or funding your children’s education. While important, the challenge with long-term goals is that they are often so far away that their payoff can seem distant and abstract. In our quest to meet our long-term goals, it can be easy to neglect the importance of having short-term financial goals.

The power of short-term goals

Planned and executed properly, short-term savings goals are the foundation for greater success. They bring heightened focus and clarity to all of your goals by connecting them to your daily actions. If you aspire to someday live debt free, how does that translate to what you should be doing now? Breaking down your long-term goals into small, digestible pieces lays out exactly what you need to do to arrive at the big milestones, while keeping you on track and motivated to continue. 

The human mind is wired to seek instant gratification, even at the expense of longer-term satisfaction. Therein lies another benefit of short-term goals – you see results sooner rather than later. Short-term goals offer that sense of immediate accomplishment the brain responds so well to. At the same time, they can be a source of invaluable feedback – you know if you are making progress toward your goals or if need to adjust course. Like rungs on a ladder, they facilitate your step-by-step climb to the top.

Defining short-term

Examples of short-term savings goals include having a well-stocked emergency fund, paying down credit card debt, buying a car or minor home repairs. Short-term goals tend to be more specific, have a defined end date – typically between one and three years – and are smaller in both scope and savings amounts than their longer-term counterparts. The added bonus of short-term goals is that setting these goals tends to put you on the right path to meeting your long-term needs as well.

TFSAs: the gift that keeps on giving

A Tax-Free Savings Account (“TFSA”) can be the ideal solution for reaching your short-term goals. Introduced in 2009, the TFSA is available to all Canadian residents 18 years of age or older with a valid Social Insurance Number (“SIN”).

As of 2019, the annual TFSA contribution limit increased to $6,000. And thanks to the TFSA’s lifetime carry-forward rule, you may have as much as $63,500 in cumulative contribution room on hand this year. Note that the value of your TFSA does not matter. The only limit is on how much money you can put into a TFSA.

Like a Registered Retirement Savings Plan (“RRSP”), you can choose from a wide range of financial instruments for your TFSA. These include shorter-term holdings, like cash accounts, guaranteed investment certificates (“GICs”) and bonds, as well as longer-term investments, like stocks, exchange-traded funds (“ETFs”) and mutual funds.

Best of all, any growth in the value of your TFSA is tax-free, as are all withdrawals from a TFSA.

Convenient and easy to use, TFSAs are also flexible enough to accommodate longer-term goals, like topping up your retirement nest egg. Whether you are saving for something one, three, 10 or even 40 years down the line, a TFSA is designed to get you there.

What to do next: One short conversation can get you started.

Ultimately, the approach you take to achieving your goals has to work for you. Call our office today to talk about your individual situation and to see if a TFSA is the right vehicle for helping make your near-term and farther-flung dreams come true.