Here’s How to Prioritize Your Financial Goals
When you have your sights set on several financial goals, figuring out your financial order of operations is essential. Often, it isn’t practical to focus the same amount of energy on each target. Instead, you need to determine which ones deserve the most attention now and which ones may need to sit on the back burner until the others are handled. Fortunately, that process isn’t as hard as it sounds. Here’s a look at how to prioritize your financial goals.
Examine the Total Amount Needed
Once you’ve identified your financial goals, estimate the total amount you need to tackle each one. This can include savings targets for future purchases, retirement, supporting a child’s education, or similar objectives, as well as the amount needed to pay off a debt you want to handle.
The total amount you need for each goal may help you prioritize your financial goals. For example, you may want to focus on those that require smaller amounts first, allowing you to hit those targets and then move on to the others. Alternatively, you may want to make the larger goals your starting point, as gathering significant sums often takes more planning.
Look at the Completion Timeline
Once you know the total amounts you’ll need, take a look at the completion timeline. If specific goals need to be hit by a particular date, write down when you need to have the goal handled. For those that are more flexible, you can default to an estimated timeline or leave them without a target date.
In some cases, the dates determine your financial order of operations when it comes to hitting your goals. If certain objectives have shorter timelines, you may want to give them your attention first, ensuring you make the deadline. If all of the goals are longer-term, then you can still factor the completion dates into the broader equation, comparing them to the total amount needed to determine the amount of focus it’ll take to hit the target.
Consider the Long-Term Ramifications
Specific financial goals have more significant long-term ramifications than others. For instance, paying off debt may boost your credit score, allowing you to secure better terms when you need new forms of credit later. Similarly, not paying off a debt on time can lead to penalties and fees. Plus, holding debts longer leads to more interest.
However, paying off debt isn’t the only financial goal with ramifications. Saving for retirement ensures you’ll be comfortable during your golden years, and starting sooner rather than later typically works in your favor by allowing the money you set aside to grow. The same is true of saving for college.
Look over your list of financial goals and determine what may occur if you don’t achieve it by the target date or fail to complete it entirely. That way, you can factor in any potential consequences that may come from not concentrating on that goal initially, if there are any to consider.
Choose What Matters Most to You
At times, the total amount needed and completion timelines alone won’t give you enough information to prioritize your list. If that’s the case, then you need to determine which goals mean the most to you, using that as a guide.
When you feel strongly about a financial goal, it’s easier to remain dedicated and focused as you work toward it. As a result, the objective serves as a point of motivation, increasing the odds that you’ll manage your money in a way that makes hitting the target possible.
Decide How You’ll Proceed
Using the factors above, you can typically create a new list of your financial goals based on their priority. Once you do that, you’ll need to determine how you’ll move toward those targets.
The approach you use may vary depending on the type of goal. For some people, tackling them one at a time is simple and efficient, allowing you to hit one objective – clearing it off your list – and then move on to the next.
For others, choosing a few goals to work toward at once may be a better choice. This is particularly true for targets that are easier to hit when given the benefit of time, such as saving for retirement or preparing a down payment so that you can buy a home. In those cases, interest and earnings allow your money to grow while it sits in your savings or investment account, requiring less money out of your budget.
Once you select the initial targets, automate your savings as much as possible. By automatically sending a set amount to the associated goal account each payday or month, you make steady progress. Plus, you won’t forget to set the cash aside, increasing the odds that you’ll hit the target.
Do you have any other tips that can help someone prioritize their financial goals? Is your go-to financial order of operations different than what most people use, and you’d like to discuss its merits? Share your thoughts in the comments below.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.