Financial Goals: How to Set, Prioritize, and Achieve Goals for Your Future


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This article is part of NerdWallet’s plain language explanation of how to build, grow and manage your money.

Do you have plans. Things you want to do, things you want to buy, milestones you hope to achieve.

At one end of the spectrum are immediate financial commitments like paying groceries and next month’s rent or mortgage. At the other are long-term financial goals like retirement, which are years or even decades away. In between are wants and needs like homes, cars, vacations, restaurants, medical procedures, and education costs.

When you have a limited amount of money, like most people, you have to plan ahead to reach your financial goals. Here’s how to set and prioritize your goals.

The three most important financial goals

Let’s start with three goals that should be top priorities on everyone’s list.

Goal 1. Set aside $500 to cover emergencies

The gold standard for emergency funds is saving enough money to cover three to six months of living expenses, so that a layoff or injury doesn’t plunge you into a deep debt hole. . (Note that we’re talking about expenses necessary to survive like food and lodging, not gourmet cupcakes and cat pedicures.)

But for many people, putting together several months of spending in savings is too expensive in the first place. So put aside the lofty goal for now and shoot for $500 as a starting point, which would at least help with an unexpected car repair or vet bill. We don’t want you to put off your progress on the next two goals indefinitely because you’re stuck behind the first savings hurdle.

Where should you keep your emergency fund? Somewhere safe (FDIC insured), liquid (like easily accessible by withdrawal or transfer of funds in an emergency, you know), and where it might even earn a little interest. A high-yield savings account in an online bank meets all of these criteria.

Goal 2. Contribute to your 401(k)

If you have an employer-sponsored retirement plan — such as a 401(k) or 403(b) (the version for nonprofit and government employees) — and your business matches n any part of your contributions, don’t waste time and register directly now. (Consult your human resources department for paperwork.) Contribute at least enough money to obtain all matching funds offered by your company.

The most common employer match is 50% of contributions, up to 6% of salary. This could translate to free money worth 3% of your salary every year. We’ll go into detail about how to invest in your 401(k) — and other retirement savings accounts you might want to consider — in the coming chapters. For now, it’s all about getting the free money that an employer match gives you.

Objective 3. Pay off high-interest debt

Discussing credit card debt may seem out of place in a guide to investing and planning for retirement. It’s not. It’s a simple calculation.

If you have a balance on your credit card and you pay an interest rate equal to or greater than a high figure, you will save more interest by paying off what you will earn by investing. (The exception: the aforementioned employer correspondence, as this is a guaranteed return on your money.)

How to Prioritize Various Financial Goals

Once you have those first financial “to-do’s”, it’s time to start planning.

As stated at the beginning of this chapter, retirement is just one of many financial goals you will have throughout your life. Deciding how much of each paycheck to direct towards which savings goal — short-term and long-term — is a balancing act. But it is totally doable.

We are firm believers in the “pay yourself first” school of thought, putting a portion of your paycheck into your Future Self’s piggy bank from the start. (We go into more detail about retirement savings strategies in Chapter 2.) Saving 10% of your pre-tax income is a good place to start; 15% is golden. If you’re contributing to your 401(k), you’re on the right track, since your contribution and your employer’s contribution count toward that 10% or 15% goal.

Then, with the retirement savings machinery running on autopilot in the background, you can focus on your more immediate wants and needs (such as kitchen, car, and daycare upgrades and additions). dress). For those non-retirement goals, ask:

1. How much will it cost? Achievable savings goals start with accurate cost estimates. Look up the actual price of things on your shopping list to make sure your goal matches reality.

2. How soon do I need the money? Divide that cost by the number of months, weeks, or years between now and your due date. If that number forces you to do a double take, consider adjusting the goal (substituting a less expensive alternative) or the timeframe (pushing the dream family vacation until next year).

3. Where should I put my savings? The answer here depends on what type of period you landed on in answer to the last question.

If you plan to reach your goal in less than five years, you should consider short-term investments like these:

Online savings or money market account

• For emergency funds. • Liquid/easily accessible. • FDIC insured.

• For expenses with a fixed deadline. • Illiquid. • May require a minimum deposit. • FDIC insured.

1% to 2% (longer term = higher rates)

Short-term bond funds (index or ETF)

• Liquid/easily accessible. • Certain risks. • Subject to fund charges. • May require minimal investment.

You might be wondering why stocks aren’t on this list. Although the stock market has rewarded long-term investors with generous returns, over short periods it is subject to wild swings.

For example, suppose you invested $100 in 2008, just before the start of the Great Recession. Your balance would have dropped to just $43 at the bottom. Now imagine how you would feel if that $100 turned into $43 was earmarked for your child’s upcoming summer vacation or first-grade tuition this fall.

The lesson: the money you need in the next five years should not be invested in the stock market.

On the other hand, money that you don’t need to touch for the next decade, or three, or four is a candidate for stock investing. This is because you have more time to wait for market declines and take advantage of any rally. (Remember that $100? Left invested, it would have rebounded from the recession and reached over $180 in September 2018.)

For most people, this kind of long-term time horizon applies to retirement savings. And for this particular purpose, there are specially designed accounts with advantageous tax treatment from the IRS. We will cover them in the next chapter.

Practical matters

What to do when there is only a limited salary to pay? We’ve created this handy flowchart to show you how to direct your money when you have multiple financial goals and competing priorities.

Take a screenshot. Print it out and post it on the fridge. Jot down daily affirmations in the margins (“Hawaii, here we come!” “Debts, your days are numbered…”) and use them as a reference whenever you wonder what to do with your spare change.


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