Financial Literacy - Families and Finance
smart spending
Savings strategies for different goals

At the same time, you may want to earn a little interest on your money.

Start by determining how much money you'll need and divide by the amount of time you have until you need the money.

For example, if a car costs $5,000 and you want to purchase it one year from now using cash, you'll need to save about $417 per month, not including taxes and registration fees.

Next, you'll have to figure out how you're going to fund this short-term savings bucket.

Keep in mind that with short-term goals, you don't have the time to ride out market corrections. You don't want to lose money if at all possible.

Campbell says your best bet is to play it safe.

"I think the short-term investor, the one (year), two-year, three-year investor, has to be thinking the very short-term monies," he says. "Savings accounts, CDs, money markets, are going to be safe investments."

Suppose you decide to keep your $5,000 in an interest-bearing money market account that yields 2.5 percent annually. You would end up with about $5,072 at the end of the year.

That would give you an extra $72 that you could apply toward registration fees and taxes, or you could reinvest the money and start another short-term bucket.

A couple of things to note about CDs: Your money will be tied up for a period of time and if you withdraw your money early, you'll likely incur a penalty that will eat into your interest earnings.

3. Establish mid-term goals

It's relatively easy to save money for things like vacations and even used cars, but as price tags rise and time horizons push further into the future, it becomes harder to keep financial goals in perspective.

For example, if your dream is to save for a down payment on a home, your child's college education or your daughter's wedding, you'll need to go beyond belt tightening and set up mid-term savings buckets.

The concept is the same as with short-term goals except that you'll need the discipline to stick with it longer and you may need to invest those buckets differently.

If you're saving for your child's college education, consider using a 529 savings plan as the vehicle of choice. These savings plans work much like a 401(k) or IRA where your contributions are invested in mutual funds and other investments.

"There are fees and costs associated with each plan but I think, hands down, a 529 is the best account to use for saving for college," says Ward.

For more information about how to allocate your assets depending on your child's age, read Bankrate's story, "A college investment plan for all ages."

Weddings are another fairly large mid-term savings goal. If you're the lucky one who will pay for it, expect the possibility of shelling out a lot of dough.

The average cost of a wedding is about $19,219, according to the weddingreport.com, a Web resource for wedding statistics and market research. Of course, a more frugal wedding can be a joyful event as well, but it's wise to plan for it nevertheless.

Money market funds, money market accounts, CDs and savings accounts are all good vehicles in which to park cash for a wedding.

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