How to Prioritize Your Financial Goals?
Do you ever find it challenging to prioritize your financial goals? If that’s the case, first things first: we recommend you to write down goals that make you feel fulfilled and accomplished, and then decide whether they are short-term or long-term goals.
- Short-term goals include paying for a vacation, a home improvement project, or buying a new car.
- Longer-term goals include paying off credit card debt, student loans, and saving for retirement.
Once you have divided your goals into short term and long term, you’ll want to figure out if they are essential or aspirational.
For the essential goals, figure out how much money is going to be needed in order for you to accomplish that goal. Then determine how much money you are able to contribute to that goal. Finally, determine the length of time you are considering, as well as the investment strategy to use the length of time that makes the most sense for you.
It is also important to review your plan and double-check your progress periodically to ensure that there are no changes and, if there are, to make the necessary adjustments to accommodate those changes. We'll get into it further down.
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Should you prioritize debt repayment, emergency savings, 401(k) contributions, or saving for your child's college education?
With so many competing financial goals, it can be difficult to know where to begin. While each situation is unique, here is a general guideline for prioritization:
1) Could You Lose Your Car or Your House?
If so, you should pay those bills first, even if it means you cannot pay off other debts, like credit cards. After all, you can always file for bankruptcy and get rid of the rest, while keeping your car and home. On the other hand, if you lose your car, it can be hard to get to work. If you lose your house, you could be homeless.
2) Are You Covered by Enough Insurance?
This includes insurance for health, property, liability (auto and home), and disability. This is especially important if you have people who depend on you. If you are in your 50s to mid-60s and have between $200,000 and $3,000,000 in assets, you might want to look into long-term care insurance. Medicare and other health insurance plans do not cover long-term care, and Medicaid requires you to spend down almost all of your assets before you can get help. Lastly, you may want to buy umbrella liability insurance if your assets are worth more than the limits of your liability insurance. It may be tempting to put off getting insurance, but you never know when you will need it, and by the time you do, it will be too late to buy.
If you have any questions for Tim Uihlein, our in-house insurance expert, click here!
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3) Do You Have Enough Money Saved for Emergencies?
Insurance does not cover every kind of emergency. Ideally, you should have enough money saved to cover the basics for at least three to six months: a roof over your head, a car in the driveway, lights and water on, and food on the table. If you have nothing to start with, aim for $1,000 to $2,000 and build from there. This money should be kept somewhere safe and easy to get to, like a savings account or money market fund. It should not be invested in something that could lose value when you need it. Lastly, a line of credit can be a good addition to your savings, but it should not replace them. Credit can be cancelled, especially if you lose your job or the economy is bad.
Related: Should You Increase Your Emergency Fund to Account For Inflation?
4) Are You Receiving the Full Match in your Employer's Retirement Plan?
This should be your first investment after you have established a comfortable emergency fund. Where else can you get a guaranteed 50% or 100% return on your investment? In fact, the benefit is so compelling that you may want to contribute even if you're already building an emergency fund. To determine which option is best for you, we recommend speaking with an advisor. Connect with a Vincere Wealth advisor free of charge by clicking here.
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5) Do You Have High-Interest Debt?
Before investing beyond your employer's match, we recommend paying off any debts with interest rates above 4-6%. This is due to the fact that when you pay off debt, you are essentially receiving a guaranteed, tax-free return equal to the interest on that debt. Nothing beats paying off a credit card balance at 19% interest. If the interest rate is less than 4%, you'll probably earn more on your investments than you'll save on interest by paying off the debt.
It depends on your risk tolerance if the interest rate is between 4-6%. If you're a more conservative person, you'll probably be happier paying down debt, and your conservative investments are less likely to earn you more money anyway. Aggressive investors will most likely prefer to invest and will be more likely to profit from their aggressive investments.
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6) Are You Planning to Buy a Home?
If that's the case, you should start saving for a down payment and other expenses once you've paid off your high-interest debt (which will also improve your ability to buy a home by boosting your credit score and reducing your debt-to-income ratio). Owning a home can also aid in retirement planning. At the very least, once the mortgage is paid off, you will no longer have a housing payment. By taking out a reverse mortgage or downsizing, you can also use the equity to generate retirement income.
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7) Are You Right on Track for Retirement?
We strongly recommend speaking with a retirement planning expert to determine if you are on the right track to achieve your goals. Connect with Isaiah Douglass to ask any burning questions you may have here. Many people are tempted to focus on college savings because it comes sooner, but keep in mind that there is no financial aid for retirement!
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8) Do You Have Upcoming Education Costs?
Given the availability of student loans and other types of financial aid, this should be your lowest priority. However, if you have all of your other affairs in order, saving money for educational costs can be very advantageous for your children or grandchildren. However, not everyone can anticipate saving enough money to pay the full amount.
We recommend getting in touch with Josh Bennett, the founder of College Funding Hero. He can estimate how much you'll be expected to pay out of pocket by clicking here! Of course, this is merely a suggestion. Your specific situation, goals, and values will have a significant impact on your priorities.
Related: Who Qualifies for Student Loan Forgiveness Under Biden's Expansion?
For more information, check out: College Funding Hero
Set yourself up for financial success in 2023 by setting priorities today. Good things will happen as a result!
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I hope this information was helpful. If you have any questions, feel free to reach out. I’d be happy to chat with you.
About the Author
Renee helps clients make sound financial decisions in her role as a Financial Planner at Vincere Wealth. Having a trusted advisor steer you toward wise choices now can have a major impact on your financial future. Renee is especially proud of her work educating and empowering women in the areas of personal finance, budgeting, and debt management.
If you're interested in an investment advisory or financial planning relationship, please consider Vincere Wealth Management.
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