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How to prioritize savings and investing goals

You know the importance of being smart with your money.

But setting proper financial priorities can feel overwhelming when you have so many things competing for your time and attention. However, don’t let this one slip to the sidelines.

Here are some common questions answered and tips to get you started:

How do I make smart financial goals?

First off, you’ll want to approach setting financial goals much like you would planning a specific travel itinerary. For example, with both, you need to have a starting point (Point A), a destination (Point B), a timeframe, and how much the journey will cost you.1

Also, keep in mind to be SMART (Specific, Measurable, Attainable, Realistic, and Time-related) when making financial goals.

Once you have a specific savings goal in mind, you can automatically set aside a certain amount of money each month — or every paycheck — to go toward that goal, much like how you would when saving for a vacation.

Make a structured and systematic plan

Financial goals are best met when integrated into a structured and systematic plan.

That means you might want to have a set amount of money automatically taken out of your paycheck or checking account and deposited into your savings account every two weeks or on a monthly basis. No matter the amount, you’ll feel a greater sense of control when it comes to meeting your financial goal.1

And, if it helps, try to think of saving smaller chunks of money, such as $5 a day rather than $150 a month, which equal the same amount at the end of 30 days. An investment firm found that the $5-a-day approach was more successful with people.2

There is also something that rings true to ‘out of sight out of mind.’ Small sacrifices can result in big changes over time.

Why and how do I prioritize my financial goals?

You need to make specific financial goals for you and your family. You don’t want to risk missing out on important objectives because you’re too busy paying attention to/concentrating on the low-hanging fruit — your day-to-day expenses.

List your financial goals

Start by making a list of all the things you need to make you feel secure and fulfilled.

Is it to get out of debt — like paying off your home equity line of credit? Is it to have enough money in your retirement savings, or for your child’s college fund? Or maybe it’s to have enough money to pay for a family vacation home?

Whatever you hope to accomplish, narrow the list down to approximately five goals.

Rank your savings goals

Then, rank your goals. Weigh the pros and cons of each item, as well as the opportunity costs.

Not sure that you can set aside enough money for a child’s education and your own retirement? Then, one might need to take priority over the other, especially if one of them could be harmful if deferred.

Keep in mind that there are loans available for a student’s tuition but not for a senior’s retirement.3 Also, if you don’t want to ditch the idea entirely of saving for a child’s education, you can save for a portion of it.

Speaking of retirement, if your goal is to make the most of it, make sure you’re contributing to your employer’s retirement account. Take advantage of its full match — which can result in an immediate 50 to 100 percent return on your investment.4

Once you do that, if you have any high-interest debts with rates above 4 to 6 percent, you might want to pay them off before contributing beyond your employer’s match. That’s because when you pay off a credit card debt that has a 21 percent interest rate, you’ve automatically earned that return.4 It’s going to be hard to find an investment that beats it.

In fact, if you have a credit card balance, you might want to place paying it off at the top of your goal list. For example, is it worth it to save additional funds that earn zero percent interest to meet a financial goal when you have a credit card balance that costs you 21 percent?

What are examples of financial goals I should have?

Your financial goals will likely be a mix of long- and short-term ones.

Long-term financial goals might include:

  • Debt reduction 
  • Retirement savings
  • Putting money away for your children’s college fund 

Short-term financial goals might entail:

  • Reducing your debt 
  • Creating a vacation fund
  • Saving enough money in case of an emergency
  • Creating a monthly budget that compares how much money you spend versus how much you make.
  • Cutting costs on three monthly bills. (For example, can you drop your cable bill, change to a more cost-effective cell phone plan, or reduce how much water or electricity you use?)
  • Meeting with a financial planner on an annual basis to make sure your financial plan matches your life goals.
  • Going on a spending fast for at least a month. (You might be surprised how much you really don’t need and there are fun free activities to do, if you go in with an open mind).5

What should I consider when prioritizing my financial goals?

Pay attention to interest rates

When the Federal Reserve raises short-term interest rates, it can have a direct impact on your financial goals.

Rising rates can mean that what you earn on savings (i.e., bank savings accounts and interest-bearing checking accounts) and pay on debts (i.e., credit cards and variable-rate student loans) will both increase.

Community and regional banks often offer competing rates, so be sure to shop around for the best one.

Do you own a home? If you have a variable-rate or adjustable-rate mortgage, then you might want to make a switch so that your mortgage rate doesn’t get to be too high.6

Plus, home equity lines of credit (HELOCs) will spike a bit — but not a lot. At a rate of 5.92 percent, for example, if it increases by a quarter-point on a $30,000 credit line, the minimum monthly payment would increase by about $6 a month.7

Tax consequences

Americans have been paying income taxes since 1913, when only 1 percent of the population made a high enough income to warrant being taxed.8

Today it’s a much different story. If you want to save on taxes (and who doesn’t?), you’ll want to do a few things — including increase your deductions (think: mortgage interest, health care expenses, charity gifts), minimize your income, and use tax credits.

You can decrease your adjusted gross income (AGI) by maximizing your 401k investment. Also, a Flexible Spending Account (FSA) and Dependent Care Reimbursement (DCR) lets you deduct part of your income tax-free to pay for co-pays, medical equipment, and more.9

And there’s more. Everyone has to pay a capital gains tax when you make a profit from an investment. It’s best to consult a tax advisor for advice regarding your specific circumstances.

Without an emergency savings, what can go wrong with your plan?

Without emergency savings, you won’t have a stable foundation for your financial security. It’s separate from your retirement savings and your regular savings account. Some 60 percent of American households experienced an unexpected expense, which was at a median cost of $2,000.10

Have an emergency fund

Experts recommend having three to six months’ of income set aside for unexpected expenses. However, if you’re unable to save that amount, don’t worry. Start small. One idea could be see how fast you can save $1,000. Or how much you can save by cutting out work lunches and putting that money toward your emergency fund instead?

And when you draw from the account, be sure it’s for real emergencies (like a leaky roof). And pay it back systematically.1 And while you’re saving for an unexpected emergency, you don’t want to forego other financial goals, like contributing to your retirement. 

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1. O’Neill, Dr. Barbara. “Make Your Financial Goals SMART and Your Savings Systematic,”, February 25, 2018.

2. Chatzky, Jean. “Millennials have big financial goals but don't have a plan, research finds,”, September 18, 2018.

3. “How Do I Figure Out My Financial Priorities?”, 2018.

4. Carter, Erik. “How to Prioritize Your Financial Goals,”, June 25, 2018.

5. Caldwell, Miriam. “10 Short Term Financial Goals for the New Year,”, July 17, 2018.

6. Konish, Lorie. “How to play rising interest rates based on your age,”, June 18, 2018.

7. Davidson, Paul. “How the Fed rate hike affects credit cards, mortgages, savings rates,”, June 13, 2018.

8. “60-Second Guide to Investor Tax Issues,”, 2018.

9. Rose, Jeff. “Tax Planning Goals – Get Your Tax Schwag On,”, November 6, 2017.

10. Bieber, Christy. “An Emergency Fund: Why You Need One and How to Make One,”, April 21, 2018.

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DOFU 11-2018