Savings Strategy
A structured approach to allocating savings across four distinct buckets, each with its own time horizon, risk tolerance, and role in your overall financial picture.
How the Model Works
Income Investments sit at the center of the model, acting as a yield engine. Each period, the yield is split 50/50 — half flows into Short-Term savings, half into Long-Term. When Short-Term reaches its cap (12 months of expenses), the overflow is redirected into Midterm savings. As Midterm goals are met, funds progress into Long-Term wealth building.
Savings Flowchart
3 – 12 Months Expenses
Short Term Savings
Min: 3 Months of Expenses
Max: 12 Months of Expenses
Yield
Income Investments
CONSERVATIVE: 4–6% Yield — Short-Term Plan
GROWTH: 6–8% Yield — Midterm Plan
AGGRESSIVE: 12%+ Yield — Long-Term Plan
Investments can be allocated into multiple Risk Tolerance Categories & Reallocated / Balanced as needed.
Overflow
↓1 – 3 Year Expense Plans
Midterm Savings
"Overflow" from Short Term
&/or Income Investments
3+ Years Until Needed
Long Term Savings
Extended Time Horizon
Yield
Tier Details
🏦 Short-Term Savings
Your liquidity buffer. Keep a minimum of 3 months of expenses here and cap it at 12 months. Anything above the cap overflows into Midterm savings automatically.
- Minimum reserve: 3 months of monthly expenses
- Maximum reserve: 12 months of monthly expenses
- Receives 50% of Income Investments yield each period
- Surplus overflows to Midterm when cap is reached
💼 Income Investments
The engine of the model. Generates yield that is split evenly between Short-Term and Long-Term every period, while the full balance continues to grow and compound.
- 50% of yield → Short-Term each period
- 50% of yield → Long-Term each period
- Principal continues to compound at blended yield
- Monthly contributions accelerate growth
📈 Midterm Savings
Medium-term goals — a vehicle purchase, home improvement, or a business investment. Funded primarily by overflow from Short-Term once it reaches capacity.
- Funded by Short-Term overflow when cap is reached
- Higher yield potential than Short-Term
- Time horizon: 1–3 years
🚀 Long-Term Savings
Retirement, legacy, or long-horizon wealth building. Receives 50% of Income Investments yield each period and benefits from the highest expected returns due to its extended time horizon.
- Receives 50% of Income Investments yield each period
- May allocate across multiple risk categories
- Rebalancing allowed and encouraged
- Time horizon: 3+ years
Risk Categories at a Glance
| Tier | Category | Expected Yield | Time Horizon |
|---|---|---|---|
| Short-Term Savings | Conservative | 4–6% | 3–12 months |
| Income Investments | Blended | 5–6% | Ongoing |
| Midterm Savings | Growth | 6–8% | 1–3 years |
| Long-Term Savings | Aggressive | 12%+ | 3+ years |
This tool is for educational planning purposes only and does not constitute individualized investment, tax, or legal advice. Yield rates shown are illustrative. Please consult your advisor before making financial decisions.