When should you prioritize short-term savings?

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Jason Herman
January 3, 2024

Setting financial goals to help shape one’s future is critical, regardless of where they’re at in life. Whether one is a recent college graduate, is getting ready to welcome their first child, or is nearing retirement, the right financial goals help them stay on track toward achieving the ideal future. 

The traditional focus on long-term savings, specifically for retirement, doesn’t align with everyone’s immediate needs and aspirations. Young professionals, growing families, and people facing urgent financial situations often require a different financial approach, at least in the short term. 

Many Americans put aside money from their paychecks into retirement accounts but later need that money for emergency expenses, resulting in 401(k) withdrawals or loans. According to recent EBRI data, 29% of 401(k) participants in their sample had an outstanding loan at some point in the last five years. Of those, 55% took multiple loans during that period. For those without dedicated emergency savings ready, a workplace emergency savings account (ESA) may be a higher priority to fund before retirement options.

Benefits teams and plan sponsors have influence on employees’ short-term and long-term retirement savings goals. By providing employees with multiple solutions beyond retirement such as workplace ESAs, student loan repayment or refinancing, and HSAs, they have additional flexibility to save for the short-term or pay off debt now rather than focusing on a long-term goal. With 52% of Americans counting less than three months of emergency savings, according to Bankrate, it’s clear that many people need more immediate, short-term savings strategies. Reality is often felt by young professionals who may be grappling with student loans and by families anticipating significant expenses like childcare or education. There are various considerations for developing an individualized savings strategy.

When does prioritizing short-term savings make sense?

Prioritizing short-term savings can sometimes be as crucial as planning for retirement. For those earlier in their careers and lives, emergency savings can take priority over long-term retirement goals. Some key areas of focus for people looking to secure their financial footing in the near term include:


Creating and sticking to a monthly budget is imperative for financial health. While 74% of Americans in 2023 reported having a monthly budget, according to NerdWallet, 83% said they overspend sometimes — highlighting the potential for many to gain more control over their finances through better budgeting. By tracking income and expenses, one can identify areas to cut back and free up funds to redirect toward savings or paying down your debt.

Saving toward an emergency fund

An emergency fund is an essential safety net for weathering life’s unexpected storms. Yet the majority of Americans have insufficient emergency savings; 57% of Americans are unable to cover a $1,000 emergency expense, according to Bankrate. For many, building an emergency fund takes precedence over long-term savings, as it provides immediate financial security and can prevent high-interest debt accumulation in times of crisis. A well-funded emergency savings account can also serve as a critical buffer against taking out retirement loans.

Paying down debt

Paying down high-interest debt is a crucial step toward long-term financial stability. Credit card debt can be especially challenging considering the notoriously high interest rates. In 2023, the average annual percentage rate (APR) on credit card accounts was 24.59%, according to LendingTree. Reducing this type of high-interest debt not only saves money in interest payments, but also frees up more of your income for savings and other financial goals. Student loan debt, while not as high interest as credit card debt, can also be a goal to pay off for many before focusing on retirement goals. 

Planning for life’s big moments

Saving for short-term goals like buying a home, starting a family, or funding higher education is a significant part of financial planning. These milestones often require substantial funds, and saving for them can be more immediate and motivating compared to the distant goal of retirement. 

Among first-time homebuyers, the average down payment is around 7% of the home’s purchase price, according to Time. With a $410,200 average purchase price for a house in the U.S. in 2023, that amounts to a significant sum for home buyers to save up — nearly $30,000. Saving for this type of milestone requires a focused, dedicated approach to short-term savings.

While retirement savings are undoubtedly important, addressing immediate financial needs and aspirations through short-term savings can be an important first step toward longer-term financial stability. One should work to establish a solid financial foundation with clear goals guided by a set monthly budget, which will help pave the way for more robust retirement savings in the future.

4 benefits of focusing on short-term savings

Prioritizing short-term savings can offer numerous advantages, helping you align with immediate needs while also laying a strong foundation for future financial stability. Notable benefits of focusing on short-term savings include:

Immediate financial security

Prioritizing short-term savings helps ensure immediate financial security. This approach is crucial in protecting against unforeseen financial emergencies like sudden medical expenses, job loss, or urgent home repairs. The security that comes from having readily accessible funds in these types of unexpected situations cannot be overstated, especially if you live paycheck-to-paycheck or have vulnerable dependents you need to provide for. Emergency savings offers a buffer that can keep you afloat without the need to incur high-interest debt.

Alleviating stress

Financial concerns are a significant source of stress for many. SecureSave co-founder Suze Orman often emphasizes that money should bring security. Financial stress is a mounting problem among Americans; 70% of people reported feeling stressed about money, according to CNBC, and 77% of Americans said that financial stress makes it harder to focus and negatively affects their work productivity, our SecureSave study found. Developing a robust emergency fund can greatly alleviate this stress and improve mental well-being. Knowing there's a financial cushion for unexpected expenses can bring immense peace of mind, and alleviate the mental health impacts of high stress levels.

Achieving personal milestones

There's a unique satisfaction and sense of accomplishment in achieving short-term financial goals, like those mentioned above. Whether it’s buying a new car, funding a wedding, or purchasing a first house, reaching these milestones can be incredibly fulfilling. These achievements not only boost confidence in one’s financial management skills, but also provide motivation for future financial discipline and planning to protect these investments.


Focusing on short-term savings provides flexibility to adapt to life's ever-changing circumstances. This flexibility is especially valuable for professionals who are just starting out, as well as young families and individuals with pressing financial obligations like long-term illness or providing for ailing parents. Having sufficient money to take care of unanticipated expenses enables you to adjust your financial planning to accommodate life changes like relocation, in-home elder care, or a growing family. 

Knowing when to shift your focus to retirement

Once someone has spent some time laser-focused on short-term savings. It's important to know when to shift one’s focus toward retirement planning — a critical step in ensuring one’s long-term financial security, especially as their income grows and retirement nears. 

For HR teams, this can mean preparing employees to start saving more for retirement as their wages rise, auto-increasing contributions each year, and providing them with retirement advice from experts.

There are a few indicators that can tell one it might be time to start putting more emphasis on retirement savings:

Achieving adequate emergency funds

A key milestone to gauge whether one is ready for this shift is saving adequate emergency funds. It’s important to ensure one has enough money in your emergency savings for your specific circumstances. Be comfortable with where one’s emergency funds are at; this will also help one feel comfortable contributing more to one’s retirement. 

Research from BlackRock shows individuals with a robust emergency savings account are 70% more likely to contribute to their retirement plan. With a solid emergency fund, one can begin to shift their financial strategy toward retirement without jeopardizing your short-term financial safety net.

Considering your age and retirement planning

The ideal time to transition from short-term savings to retirement savings can also depend on your age and financial stability. As one progresses in their career and potentially starts earning more, it becomes increasingly important to look toward retirement. While it’s never too late to start saving for retirement, the earlier one begins, the more they benefit from compound interest (more on that in a minute). 

A younger professional in their 20s or 30s will likely have different priorities compared to someone in their 40s or 50s. When moving into a different stage of life and career, it’s important to reassess financial priorities and strategy, with a gradual increase in retirement contributions as time passes.

Taking advantage of employer retirement benefits

Taking full advantage of employer-sponsored retirement plans just makes sense. Many employers offer 401(k) plans, sometimes with matching contributions. Choosing not to use these benefits is similar to leaving free money on the table. These retirement plans not only provide a structured way to save for retirement, but they often come with critical tax advantages. 

Make sure to understand the specific benefits an employer offers and how they can bolster retirement savings, and consult with a financial advisor as needed.

Capitalizing on the power of compounding interest

Compounding interest means earning interest on interest, which can lead to substantial growth over time. For example, if one starts with $10,000 in a retirement account at age 30 and contributes $200 monthly with an average annual return of 6%, by age 65, they would have over $372,000. This shows the significant impact of starting early and consistently contributing to one’s retirement savings.

Looking ahead toward retirement

As with anything in life, every individual’s strategies and decisions will look different — and that’s perfectly fine. Start by assessing current circumstances and what makes the most sense for right now. Prioritizing short-term savings is perfectly fine, and even advisable, for many people. The key, though, is to always keep the long-term in mind and to know when to start shifting your focus toward retirement. Waiting too long can cause unnecessary stress as retirement age looms closer. 

Once one is ready to move toward a retirement-focused savings strategy, research and choose the retirement account option that makes the most sense. Leverage employer resources to get the financial advice one needs, and consult with an independent financial advisor for help with major financial decisions. 

Making the right decisions at the right times will provide a pathway to peace of mind and financial security.

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Jason Herman

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