FINANCIAL FOCUS: How should you pay for short-term financial goals?

As you go through life, you will likely have long-and shortterm financial goals. But how will your strategies for meeting your long-term goals differ from those needed for your shortterm ones?

If you're like most people, your biggest long-term goal is achieving a comfortable retirement.

And for this goal, a common strategy is putting away money in tax-advantaged retirement vehicles, such as your 401(k) and IRA.

So, how should you go about preparing for shorter-term goals, such as a family vacation, home renovation, wedding or major purchase?

For starters, determine what your goal is, how much you can spend on it and when you'll need the money. Even if you can't pinpoint a precise amount, you can develop a good estimate. Of course, the sooner you start this process, the better off you'll be, because you'll have more time to save.

Your next decision involves the manner in which you save for your short-term goal. Specifically, what savings or investment vehicles should you use?

The answer will be different for everyone, but you need to make sure that your investments align with your risk tolerance and time horizon. And you'll want to ensure, as much as possible, that a certain amount of money is available for you at the specific time you'll need it.

If you aren't able to save enough to reach a short-term goal, you have other options - you can borrow what you need, or you can potentially sell investments to cover the cost. How can you decide which choice is best?

To help make up your mind, you'll first want to consider some of the most common borrowing options: credit cards, home equity loans, personal loans and margin loans. (A margin loan lets you borrow against the value of investments you already own). How might each of these loans fit into your overall financial strategy? Will the repayment schedule work with your cash flow and budget?

You'll then want to compare the costs and benefits of borrowing, in whatever form, against selling investments. For example, if you can borrow at a lower interest rate compared to the return you think you can get from your investments, borrowing might be a reasonable choice.

You'll also need to consider other factors, such as your credit score, taxes, fees associated with selling investments and time needed to repay debts. If, for instance, selling investments will trigger a large amount of taxes, borrowing might be preferable. You'll also want to consider whether there's a penalty or high costs associated with selling investments.

In addition, if you have a long time horizon for a loan, you may want to sell investments to avoid paying interest for a longer period of time, and thus driving up the overall cost of borrowing.

Finally, keep in mind that you may have built an investment mix designed to align with your goals and risk tolerance. If you were to sell any of these investments to meet short-term needs, you would want to consider the need to rebalance your portfolio to maintain your desired asset allocation.

As you can see, there's a lot to think about when it comes to paying for short-term goals. But by carefully evaluating your options, you can make the choices that are right for your needs.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Edward Jones. Member SIPC.