Saving for the future you want while managing your present

Updated onApr 24, 2023
7 minute read
navy federal saving money


Most of us have a general idea of how we want our future to look, but having competing financial goals can make it seem difficult to achieve. We ask ourselves,…

Most of us have a general idea of how we want our future to look, but having competing financial goals can make it seem difficult to achieve. We ask ourselves, “How can I fund tomorrow’s goals while paying today’s bills?” The answer is simpler than you’d think—make a plan!

What kinds of things are on your wish list—a sporty new car, a down payment on a home of your own, a fabulous retirement fund? Knowing how much money you’d need for each of your goals and how long you have to save for them can help you develop a solid plan to create the future you want. Start with breaking your savings goals into one of these three categories:

  • Short-term goals (less than three years)
  • Mid-term goals (in the next three - 10 years)
  • Long-term goals (10 years or more)

Now you’re ready to start saving and deciding where to put your money. The good news is there’s a healthy variety of savings options available to you that can help you build a well-rounded portfolio. But, keep in mind that each has different features and benefits.

Short-Term Savings

Emergency Fund. If you suddenly had a large, unexpected expense, could you pay for it out of pocket? Lots of people couldn’t. In fact, a recent study conducted by Bankrate found that fewer than half of U.S. adults would be able to pay for such an expense out of savings and a quarter would have to pay with a credit card. That’s why one of the most important short-term savings accounts you can have is an emergency fund. Why do we think it’s so important? Because getting hit with a large expense that you can’t pay could derail your finances, so it only makes sense to have something set aside -- just in case. 

So, how much should you have? That really depends on your individual circumstances, but a good rule of thumb is to save three to six months of expenses. Many people put their money in an easily liquidated (easily accessed), high-yield savings account like a money market account. You’ll be able to keep adding money like a regular savings account, but money markets tend to earn higher dividends. Both banks and credit unions offer them and both are federally insured up to $250,000 per account holder. But, credit unions don’t charge service fees that eat into your earnings and tend to offer higher rates on all their savings options. For example, we’ve recently learned that Navy Federal Credit Union’s money market rates are far above the national average.

Other Short-Term Goals. Suppose you have several goals, like car maintenance, vacation, baby or wedding fund. You could open separate accounts for each goal or have an account with money earmarked for each specific purpose. Once you know how much you’ll need, divide that amount by the number of months (or weeks) you have to save to determine how much to deposit each time. For example, if one of your goals or several goals combined would cost $3,000 and you need the money in a year, you’d contribute $250 each month (or about $58/week). Since you’ll be earning dividends on the money, your balance at the end of the year should actually be higher than the $3,000 needed. And, planning ahead means you won’t have to dip into your emergency fund. 

Mid-Term Savings

Have an upcoming expense that will happen in the next three to 10 years, like a dream vacation or down payment for a house? Here are some options that may work well.

Certificates. If you can afford to leave your money to grow for a bit, a good choice may be a certificate (or CD). You’ll agree to deposit money for a set period of time, so you’ll usually earn a higher rate than you would with other types of savings accounts. In general, the higher your balance, the higher your rate will be. These accounts usually have a minimum deposit amount that can range anywhere from $50 to $100,000 or more, but a few will allow you to continue to add money throughout the term.

One major benefit to these accounts is that your money will grow securely, regardless of what is happening in the stock market. The terms (how long until the certificate matures) can range from three months to five years. You can withdraw the money before your certificate matures if you need to, but it’s likely you’ll pay some sort of penalty. As with money market accounts, both banks and credit unions offer certificates, but credit unions often offer higher rates. Navy Federal, for example, currently offers both short-term (from three - 24 months) and long-term certificates (up to seven years) with APYs* that can go up to more than 4.00%.

Stocks, Bonds, Etc. Investing in the market has the potential to earn you more on your money over time, although how your portfolio performs will depend on market conditions. You can buy shares in stocks, bonds, exchange-traded funds (ETF) and mutual funds and can use funds from these accounts whenever you want. If you choose to go this route, you should take a long-term view of how your investments perform to account for markets’ highs and lows. It’s probably best for goals that take at least five years. 

If you’re uncertain how to get started, Navy Federal Investment Services has financial advisors who can take a look at your overall finances to help you make a plan. They also offer two simple options with their Digital Investor online investing tool. You can choose either an automated account that will do it all for you or a self-directed account, where you can research, buy, sell and track your investments yourself. (It doesn’t take a lot to start—some securities are as little as $1.) 

Long-Term Savings

Saving for the future is essential to maintaining a high quality of life in retirement. But, how we save can take many different forms.

401(k). One of the best vehicles for retirement savings is an employer-sponsored retirement plan like a 401(k) (or Thrift Savings Plan [TSP] for military members)—especially if your employer will match your contributions. It’s like getting free money! For example, suppose your employer will match 100% of what you contribute up to a certain percent of your salary. Let’s say that number is 3%. If you contribute 3% of salary, your employer will also contribute 3%, so 6% of your salary goes in your account. 

IRA. Another option is an IRA or Individual Retirement Account. You can open an IRA even if you have an employer-sponsored plan. And, you’re not limited to having just one. As of 2023, the most you can contribute to all your IRA accounts combined is $6,500 (or $7,500 for those aged 50 and older). If you max out your IRA every year and have more money to put toward retirement, consider contributing more into your 401(k) or TSP. 

There are three types of IRAs: Traditional, Roth and SEP. All offer you significant tax advantages.

Traditional IRA. You’ll use pre-tax dollars—which means you’ll contribute the money before taxes are taken out. That’s great because not only are you not paying taxes on your retirement fund up front, but you’ll be in a lower tax bracket—so you’ll pay less in taxes on your income for the year you contribute. Plus, you may be able to deduct your contributions if you qualify. You won’t actually start paying taxes until you start withdrawing money. However, since you’ll be retired, you’ll probably be in a lower tax bracket than when you were working. 

Roth IRA. You’ll use after-tax dollars—that is, the money you have after you’ve paid taxes—to make your contributions. They aren’t tax-deductible, but you won’t be paying taxes on your withdrawals. Plus, you can pass down your money to your heirs tax free as well.

SEP IRA. Simplified Employee Pensions (SEP) give business owners a simple way to contribute to their employees’ retirement and to their own retirement savings. Contribution limits tend to be higher (up to 25% of an employee’s income or $66,000 in 2023, whichever is lower). However, contributions are subject to certain restrictions. You won’t pay taxes until you make withdrawals.

Want to know more about steps to a happy retirement or try out their retirement interest calculator? Visit Navy Federal’s MakingCents financial education center. 

Saving for the future can seem daunting, and it’s crucial to find guidance when building a financial strategy that works for you. As with all financial information like this, make sure you consult a financial advisor to help with your unique situation. If you don’t have one, Navy Federal is an excellent resource to help you reach your future goals. Members can reach out to receive financial planning guidance from one of their financial counselors.

This article was sponsored by Navy Federal Credit Union. Navy Federal Credit Union is federally insured by NCUA. Navy Federal Financial Group, LLC (NFFG) is a licensed insurance agency. Non-deposit investments, brokerage, and advisory products are only sold through Navy Federal Investment Services, LLC (NFIS), a member of FINRA/SIPC and an SEC-registered investment advisory firm. NFIS is a wholly owned subsidiary of NFFG. Insurance products are offered through NFFG and NFIS. These products are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of Navy Federal Credit Union (NFCU), are not offered, recommended, sanctioned, or encouraged by the federal government, and may involve investment risk, including possible loss of principal. Deposit products and related services are provided by NFCU. Digital Investor offered through NFIS. Financial Advisors are employees of NFFG, and they are employees and registered representatives of NFIS. NFIS and NFFG are affiliated companies under the common control of NFCU. Call 1-877-221-8108 for further information. *APY = Annual Percentage Yield. Image used for representational purposes only; does not imply government endorsement.