How to Budget for Short-Term and Long-Term Financial Goals?

Written by : Knowledge Centre Team

2025-09-24

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11 minutes read

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Budgeting is an important exercise if you want to keep your money in check. Budgeting your expenses allows you to control the outflow of money and spend where it creates more value for you. Similarly, budgeting will allow you to stay organised with long-term plans as well. However, you might ask whether you can budget for your goals without a full-scale financial plan. So, here’s a step-by-step process to budget your goals and understand the essentials of financial planning even when you don’t have a full financial plan.

Key Takeaways

Always secure your finances against life’s uncertainties with insurance and a contingency fund before setting other financial goals.
Distinguish between short-term and long-term goals and prioritise based on how soon they need to be achieved and their impact on your life.
Aim to save at least 40% of your income, balancing between essential protection tools and your lifestyle and long-term goals.
Long-term goals like retirement and a child’s education demand early action for compounding benefits and financial peace of mind.
Choose smart products like SIPs, NPS, and term plans tailored to each goal’s timeline and nature.

Steps to Budget Your Financial Goals

Creating a budget for your financial goals is more than just allocating funds; it's about building a roadmap that aligns your income with your aspirations, one smart decision at a time. Here's how you can start budgeting effectively to meet both short-term and long-term objectives with confidence.

Lay the Foundation with a Safety Net

The first step of any financial plan is to prepare you for life’s contingencies. Contingencies are unpredictable events that can set you back financially unless you are prepared with the right tools to face them.

For example, job loss, business slowdown, sudden hospitalisation, accidents, disability, illness, or the ultimate hazard of untimely death. Some of these events can be covered with insurance. For example, health insurance plans can help you financially in case of hospitalisation and illnesses. Life insurance plans like term insurance will provide financial support to your family in case of your early demise.

Insurance, however, cannot help you cover the other financial hazards like job loss and market slowdowns. Therefore, you need to build a reserve of funds to cover your expenses during such times. This fund pool is called a contingency fund or emergency fund.

The ideal size of the fund would range from 3 to 6 months, depending on your situation and trade.

Thus, before you start budgeting for your financial goals, you need to ensure the following:

The premium for protection plans, such as term life insurance and health insurance plans, is automated for payment
Building the emergency fund is the first goal (3-6 months’ income or 6 to 12 months of expenses). This fund pool must keep up with your rising income and expenses. Thus, contributions to this goal should be automatic as well.

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Define your Financial Goals

Once you are all set to face any contingencies, you can relax and start thinking of achieving your long-term and short-term goals. While defining goals is very much alike despite the type and shape of them across the spectrum, real work is in prioritising them.

Classify Your Goals by Timeframe:

Short-Term Goals (0–5 years): Home renovation, car purchase, gadgets, vacations.
Long-Term Goals (5+ years): Child’s education or marriage, retirement, buying a home.

Also, while defining the goal, you need to be specific with the following:

What is the goal about? i.e., Child’s education, new car, house renovation, etc.
How far is the goal? i.e., 5 years, 10 years, 30 years.
How much money will you need? i.e., your favourite car, which costs ₹10 lakhs now, may cost ₹12 lakhs five years later. So, you will need ₹12 lakhs for the goal
Can you extend the time? For example, you can postpone your car purchase goal by a few years, but not your child’s higher education goal

Other things you should remember while budgeting for your goals are:

Long-term goals may not change for a long time
Short-term goals will change frequently
Budget for long-term goals first
Many short-term goals can be postponed

Prioritise Your Goals Based on Time and Importance

Not all goals are equally urgent or important. Prioritisation helps you allocate your limited resources more effectively.

You will need to use at least two parameters to prioritise your goals:

1. Time to Goal
2. Importance of achieving the goal for your family’s future

For example, buying a house and higher education for your child are both important financial goals. But a child’s higher education goal could be 15 years away, while you would want to buy a house within five to 10 years.

Learn - how to plan for the best higher education for your child.

Set a Savings Target

Once you have defined all your goals, you need to start saving and investing money to achieve them. Your total savings will account for everything from the contingency fund to retirement savings. The ideal ratio of spending vs savings should be 50:50. However, a higher savings ratio is always welcome.

While your contingency savings and insurance are towards a goal that you would not want to achieve, you may consider them as a necessary expense. Thus, your savings ratio for your short and long-term financial goals can be as low as 40%.

Meaning, if you are earning ₹1 lakh a month, ₹40,000 should go towards the following goals:

Home Renovation
Child’s higher education
Your retirement
Car purchase
Family vacation

Also, the 40% savings have to be divided for each important goal. Here are the best practices based on prevailing inflation and interest rates in India:

Financial Goal	% Of Savings
Retirement	15%
Child’s higher education	10%
Child’s marriage	5 – 7%
Other Goals	8 – 10%

Budget for Long-Term Goals First

Your short-term goals may seem more exciting, but long-term goals require early action to benefit from compounding and market growth.

Why Budget Long-Term First?

Goals like retirement or education need more capital and longer horizons.
Postponing savings for long-term goals increases the monthly burden later.
You can always re-adjust short-term plans, but not long-term commitments.

Tools to Use:

Public Provident Fund (PPF)
National Pension Scheme (NPS)
Mutual funds (via SIPs)
Insurance-linked plans like ULIPs or Guaranteed Savings Plans

Budget for Short-Term Goals Smartly

Short-term goals are easier to track and fund, but often more frequent and impulsive.

Best Practices:

Keep these goals flexible.
Use short-term investment tools like Recurring Deposits, Liquid Mutual Funds, and Fixed Deposits.
Bundle lifestyle expenses (e.g., buy gadgets or upgrade home during sales).
Avoid dipping into your emergency fund for short-term desires.

5 Few Tips to Carry your Finances High all the Time

Always ensure timely allocation to term life insurance and health insurance policies.
Keep your contingency fund up to date with your present income and expenses.
Make lifestyle expenses less frequent and club minor lifestyle purchases. This will help you achieve better value for money in your lifestyle purchases.
Club similar lifestyle purchases for better value. This could mean postponing a few expenses and preponing others.
Use a credit card to prepay expenses only for a month, but always with money in the bank account.

Conclusion

Financial planning doesn't have to be rigid or complex. With a clear budget, the right insurance products, and consistent savings habits, you can meet both your short-term needs and long-term dreams without stress.

By taking smart steps today, like building a contingency fund and securing your family with the iSelect Smart360 Term Plan by Canara HSBC Life Insurance, you ensure that no unexpected challenge can undo your financial hard work.

Remember: A good budget is not restrictive; it’s empowering. It gives your money a purpose and your life a secure direction.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.