Short-Term vs. Long-Term Savings; The Difference in First Downs and Touchdowns

I was watching our local high school football team play a game last season and noticed something interesting.

The offense was doing a great job moving the ball. With each first down, the fans would cheer, and the band would play a portion of the school fight song. When they got into the red zone, they began to have problems and could not make a touchdown, having to settle for a field goal. The other team’s offense struggled to make first downs but had a few long plays that resulted in giving them the opportunity to score a touchdown.

The stats showed that our team had more first downs, but their opponent had more long yardage plays, scored more touchdowns, and won the game. First downs are short-term goals worthy of celebration, but touchdowns are the long-term goals that help a team get ahead.

Creating a Financial Playbook

Just like we celebrate first downs, we need to set short-term savings goals for our money and celebrate those accomplishments. More importantly, just as touchdowns are long term goals that help a team win the game, long-term savings goals can make a greater impact on our financial stability.

On the field, it is the quarterback’s responsibility to learn the offensive plays and communicate the game plan to their teammates. If they are successful, they will lead their team down the field, make first downs, score touchdowns, and hopefully win the game.

As a father, it is our responsibility to learn basic financial principles and set financial goals for our family. We have to be intentional about creating a financial game plan and communicating that to our children. If we are successful, our children will learn these principles and add them to their financial playbook, helping them win financially.

My Daughter Learns to Save

When my daughter was 9 years old, I took her to the bank and opened a savings account in her name. I told her that I would match any money she put into the account dollar for dollar. That meant with every deposit she made, the amount being deposited would double. The money in that savings account would be what she used, at age 16, to purchase her first car.

When my daughter was 10 years old, she asked if she could purchase a new game system. I told her that she could not use the money in the savings account, but if she wanted to save additional money, she could make the purchase. She asked about the game system at the beginning of January, and her birthday was at the end of April. My wife and I decided that we would purchase the game system for her birthday, and she could use the money she saved to purchase games for the game system.

My daughter made a chart with a picture of the game system at the top and put it on the refrigerator. She began asking for additional chores to make extra money. She did work around the house for her grandparents and aunts and uncles to make extra money. Every night, she would count her money and mark off different levels on the chart. By the first week in April, my daughter had saved $140, purchased the game system, and a game to go with it.

At that time, my daughter’s savings account, to purchase a car, had been opened for around a year and a half. The balance in the account was only around $50 even though I had doubled the money being deposited. She did a great job setting a short-term savings goal to purchase something she wanted. The problem with the savings account was that, at 10 years old, she did not see the value in saving for a car. She did eventually understand the value of long-term savings, and she paid cash for her car when she started driving.

The Value of Short-Term and Long-Term Savings

We definitely need to set short-term savings goals and celebrate successes. By having at least $1,000 in a savings account, we can take care of financial emergencies. We can also save to make purchases without having to use debt.

Long-term savings is more difficult but can make a bigger financial impact. For most people, saving for a down payment on a house is a long-term savings goal. If you do not pay a down payment when you purchase a house, you may have to pay Private Mortgage Insurance (PMI) on your loan, and the cost of the PMI is added to your monthly payment. By paying at least a 20% down payment, you will avoid paying PMI, making your payment less. This will allow more of your payment to be applied to your balance, saving you interest and allowing you to pay the loan off faster.

Another area of long-term savings most people do not consider until later in their career is retirement. No matter how you save for retirement, the principle of compounding return over time applies. Assume you save $150 per month at a 6% annual interest rate. If you started saving at age 25 and save $150 per month until you are age 65, you would have $287,694. If you started saving when you are age 35 and save $150 per month until you are age 65, you would have $147,038. In the 10 years from age 25 to 35, you would have only saved $18,000 more, but you would have $140,656 more at age 65 because of the compounding return over time.

There are ways to have an even greater impact on the amount you have saved at retirement. As your income increases, you can increase your savings as a percentage of your income. If your employer offers a retirement plan where they will match a portion of your contribution, you can save an amount equal to the maximum you employer will match.

As fathers, we need to have a financial game plan, make short-term and long-term savings a priority, and teach our children about saving.

The teams and fans celebrated first downs on the field, but it was touchdowns that helped win the game. We can celebrate meeting our short-term savings goals, but the impact of long-term savings can take you and your family from not ever getting ahead in life to helping you win financially.

Financial Fundamentals

1.Set short-term savings goals.

• $1,000 emergency savings

• Rental deposit

• Down payment on a car

• Something you want to purchase

2. Set long-term savings goals.

• Down payment on a house

• Retirement

• Your child's college education

3. Make long-term savings attainable.

• Save a specific amount per pay period

• Save through payroll deduction

• Do not access long-term savings early

4. Maximize the effect of saving.

• Start long-term savings now

• Save at least the amount your employer will match toward retirement

• Choose savings options that yield a higher return

5. Celebrate Successes.

• Take pride when you reach a savings goal

• Don’t stop there; set a new goal!