Are you targeting the right financial goals and priorities? Here's how to find out
Competing financial priorities can make it hard to manage your money. Learn to identify and prioritize your financial goals with these simple tips.
Author: Sarita Harbour
Competing financial priorities can make it hard to manage your money. Should you focus on paying off debt, maxing out your retirement contributions, budgeting for a down payment on a house, or saving up for that big trip abroad? Sorting out your financial goals means examining these questions and identifying what matters most to you. It's the quickest, easiest way to create an actionable financial plan. From there, you can clearly track your progress toward your goals.
Of course, it tends to get a little more complicated than that. Here are some straightforward tips to help you cut through the confusion.
Write down your financial goals
Before you can prioritize your money goals, you need to know what your goals are. One way to do this is to make a list of the things you want to do in life that cost money.
Start by sitting down with your spouse (or your cat — we won't judge) to brainstorm a list of financial goals for you and your loved ones. These could include aims like:
- Paying off debt from credit cards, student loans, or even your mortgage
- Building up an emergency fund
- Turning your dream vacation into reality
- Buying a vehicle
- Renovating your home
- Purchasing a new home or cottage
- Saving for your kid's post-secondary education
- Retiring at a set age or in a certain timeline
Next, arrange these items into short-term goals (within one to three years), medium-term goals (three to five years), and long-term goals (five years and beyond).
Dealing with debt can feel isolating, but you’re definitely not alone. Nearly 40% of Canadians living with debt say it was because they lived beyond their means, and a quarter say they’re making poor progress paying it down."
Prioritize your goals
Take a closer look at each of your goals. What matters the most to you and your family? Which goals are you most excited about?
Sometimes, it's easy to identify financial priorities based on your current circumstances — if you have a leaky roof or an ancient vehicle that's barely roadworthy, then it might be obvious which fixes deserve your attention first. And sometimes financial goals depend on others that must be met first, such as paying off debt to free up monthly savings toward the down payment for a new home.
If you're unsure what to prioritize, look through your list of financial goals for those that most reflect you and your family's values. For example, if financial independence is most important to you, prioritize paying off your debt and starting a retirement savings plan. Want to live life to the fullest? Focus on funding your next trip. Have young kids? Saving to help them with college or university might be a good place to start.
If you're still having a tough time deciding which financial goal to tackle first, a safe default is to build your emergency fund until it can cover up to nine months of living expenses. If the unexpected happens — say you lose your job or your heating breaks in the middle of winter — it won't send the rest of your financial goals into a tailspin.
Get specific about your goals
Once you've prioritized your list, break each goal down into specific items or milestones. Add a dollar amount and time frame so you can develop an action plan for each goal.
Really get into the details. Start by determining how much money to allocate to each one and figuring out how long it'll take to reach that amount. For example, change "become debt-free" to "paying off $10,000 dollars of outstanding consumer debt within 24 months." Change "buying a new car" to "saving $12,000 dollars in two and a half years to buy a secondhand car."
Next, get even more specific about your goals by detailing how you'll go about achieving them. So, "paying off $10,000 in consumer debt within 24 months" might turn into "build a debt repayment strategy that targets the highest interest rate first, then the second-highest interest rate debt, and so on until all credit cards, credit lines, and loans have been paid off." Then, you can break that down further to "pay $500 per month towards the highest-ranked item on my debt repayment strategy."
Sure, you might turn a 5-item list into a 20-item list, but estimating the cost and timeline of your goals gives you a solid foundation on which to build your savings plan. Turning each big, daunting goal into a bunch of small, doable items can help you actually reach those goals.
Find one thing to do now
Giving yourself a plan isn't the same thing as following it. Get the ball rolling by picking one item from your list of financial priorities that you can start on today.
For many people, that choice will fall into one of two buckets: increasing savings or paying down debt.
Either way, you'll need to find some extra money to work with. This may be as simple as cutting back on dinners out or entertainment costs. It might also involve developing a budget or fine-tuning the one you have.
Identifying and prioritizing your money goals can take some time, thought, and discussion to really home in on what matters to you and your family. And as life situations change, so too can your financial plans. Even so, going through these steps will give you a good starting point and a financial action plan to help you meet your goals.
Want an expert opinion on your financial priorities? Talk to an advisor today.