Establish your financial priorities (worksheet inside!)

Quick — can you list your top financial priorities?

My top priorities (aside from basic living expenses) are building a house and travel. Those are the two things I daydream about the most, and the two things I try to keep in mind when I'm deciding whether I really need all 10 “hard-to-find” books from the used book store or whether I'm overspending on, say, a $100-compost bin, when there's a cheaper alternative (<—My husband and I built one of those this weekend!).

When we were paying off debt, however, we had a different set of priorities. After the bare necessities, there was paying off the credit cards, then paying off the car, and finally a fully-funded emergency fund. (As I've mentioned before, we didn't start with the mini-emergency fund, which is the best way to go — we were still learning about money and fumbling our way through debt repayment.)

Recently I realized that establishing financial priorities — really defining them and creating ways to keep them in the forefront — is what got us out of debt and has helped us to save up for extras like vacations and building a house. There's no point in scrimping and saving if you don't know what you want to do with the money — whether it's a cushy retirement, owning your home free-and-clear, helping your kids pay for college, or traveling to Barcelona.

Defining Priorities Improves Chances of Success

Your priorities are your own, but defining them for yourself and your family is likely to increase your odds of success, especially if you tie them in with big-picture goals. A study on spending habits and goals found that keeping the big-picture reasons in mind improves your chances of achieving your goals. From The Journal of Consumer Research:

People become more close-minded when they focus on logistics, and less likely to take advantage of unexpected ways they can move closer to their goals. But people who focused on the abstract reasons were able to spontaneously take advantage of ways to turn their dreams into reality.

Planning is important, no doubt. You can't daydream about a trip to Spain for months without taking the smaller, concrete steps to save the money for the trip. But the study found that to turbo-boost your planning, you have to think abstractly, keep an open mind, and remind yourself of why you are working toward the goal. So, what are your priorities?

Define Your Financial Priorities

If you've never laid out a plan of how you want your money to work for you, it's time to change that! I advocate making them concrete with paper and pen (of course a computer document is fine, too).

Let's say you are in the zeroth stage of personal finance. You don't have any savings, you live paycheck-to-paycheck, and you're just becoming aware that this lifestyle can't continue without dire consequences. Maybe you want to buy a house, but saving a down-payment seems impossible. First, you have to address your debt and spending habits. Your priorities might look like the following:

Big picture goal: Buying a house

  • Priority one: Rent or mortgage payments, taxes, insurance premiums, groceries, and utilities
  • Priority two: Car loan, emergency fund
  • Priority three: Credit cards, medical bills

This isn't to imply that priority three expenses like credit card debt aren't important, but if you're behind on rent, your top priority is to call your landlord and get caught up on payments (and look for a cheaper place to live, if possible).

If you are in the Big picture goal: A trip to Spain

  • Priority one: Saving for retirement, taxes
  • Priority two: Paying off the mortgage
  • Priority three: Vacation savings

I had the hardest time defining my own goals between stages two and three. Like J.D., I paid off my debt, saved an emergency fund, and then wondered, “what's next?” My husband and I stashed the money that once went toward debt repayment and emergency savings in an online high-interest savings account. We weren't sure what else to do!

When I read about opening subaccounts at ING Direct, the idea resonated with me. I wrote out a list of priorities, created a subaccount for each one, and gave them designated percentages based on importance. For example, saving for a house might get 20% of the money saved after we'd paid for living expenses and other obligations.

Reevaluate and Reestablish

Personal finance goals will change many times as you enter different stages in life, and not just different personal finance stages. Times to reevaluate your priorities might include the following life changes:

  • Going back to school
  • Moving
  • Getting married
  • Getting divorced
  • Having a child
  • Having a second child
  • Losing a job
  • Getting a promotion
  • Changing careers
  • Starting a business
  • Sending kids to college
  • Caring for an elderly relative
  • Retiring

Until writing this article, I hadn't always considered how many changes warrant a review of our financial goals. My husband went back to school a year ago, for example, and that would have been a good time to reevaluate, but we didn't think about doing it. It's a good way to buy yourself some peace of mind, though. No matter what life throws at you, reestablishing your goals will give you a financial road map to follow.

Ready to get started? Nonprofit credit counseling agency Money Management International is providing a free financial goals worksheet (scroll down) as a part of Financial Literacy Month. You can use it to plan for short-, mid-, and long-term goals, including cost estimates and target dates. After you've filled it out, print it and write your big-picture goals at the top of the page (to take advantage of thinking in the abstract). Revise as needed!

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LifeAndMyFinances
LifeAndMyFinances
9 years ago

I think my financial goals are a lot like your April.

My wife and I just dumped all of our debts, and now our new goal is purchasing a house (with a 20% down-payment) and paying cash for my wife’s education.

It’s going to be tough, but they’re still fun to pursue! 🙂

retirebyforty
retirebyforty
9 years ago

We only have a few goals right now.
– pay down mortgage
– save for early retirement
– raise a kid

The problem with pay down mortgage is the huge amount. We are working on it. The problem with saving for retirement is a bit different – How much is enough? It’s a tough question to answer and evaluate.

Mom of five
Mom of five
9 years ago

I also got the idea of the ING sub accounts from here and it has been HUGE for us. We were absolutely stagnating for years since we’d paid off all credit card and student loan debt and fully funded our EF.

Now we have separate accounts for the EF, car replacement, kids’ tuition, and vacation funds. Although we actually have more money in total savings now we definitely feel poorer which has been a wonderful motivator to increase savings.

Sustainable PF
Sustainable PF
9 years ago

We have been using those Vertex42 spreadsheets for a few years as well. Really great tools and an awesome alternative to online services that could potentially be breached (and all your financial data being at risk).

I should really look at the Money Mgmt Template a little more. I found it to be more work (which it is) over some of their monthly budgets sheets which we fully utilize.

Lody
Lody
9 years ago

My fiancee and I are starting to combine finances, so we’re starting to look at our shared long-term financial goals. Luckily, we’re mostly on the same page, although I tend to want to put a higher % of our earnings in long-term savings (retire early!) and she tends to want to put more in short-term savings (travel the world!). We’ll find a balance, I think. We’ve discussed the sub-account thing a few times, and plan to make separate savings “buckets” for travel, house repairs/upgrades, and an emergency fund, all independent of our retirement savings, of course. We plan to use… Read more »

Nicole
Nicole
9 years ago

I think of my financial priorities in even bigger buckets (which are then broken down into smaller buckets). This helps me think about WHY we have the goals we have.

I’m incredibly risk averse. So security is a big umbrella. Education is another big umbrella. Growth (I like to watch things grow) is a third.

Security
-Retirement savings
-Slush
-Earn a lot

etc. with the subgoals broken down into action points as you’ve done.

I think that we may have stolen that from David Bach.

cc
cc
9 years ago

hsbc does the sub-accounts too for their online savings- i’ve got like 10 of them. one for my wedding, one for my fiancee’s wedding present, a travel fund, our change jar/couch fund, emergency fund, etc, etc. one thing the article didn’t bring up- the ENORMOUS satisfaction of buying something you saved up for for-EVER! i saved up for a $650 gift for my fiancee- steep for my pittance of an income- and buying it was so rewarding, because i knew i had worked hard, put aside the money specifically for that purpose for over a year, and that i could… Read more »

Tanya
Tanya
9 years ago

Another great tip for goal setting: Write down three goals (long-term, short-term, whatever) on an index card and keep it in your wallet. Whenever you buy something, you have a tangible and visible reminder that you’re saving for goals. When I’m tempted to spend money on some impulsive or unnecessary thing, having the card in my wallet is a good reminder that there are better things I could be doing with my money.

G Martin Poole Cfp
G Martin Poole Cfp
9 years ago
Reply to  Tanya

Tanya,

I loved your comment. I have several clients that have trouble with their spending and yours is an excellent idea. I am definitely going to suggest that they try this approach.

DreamChaser57
DreamChaser57
9 years ago
Reply to  Tanya

Love this tip or is it a hack, sometimes I get rusty on my personal finance parlance…I will definitely be using this. As the family money manager, I think this will come in more handy for me, hubby just uses his allotted cash allowance.

Whitney
Whitney
9 years ago

I’m looking forward to reading the comments on this one. I’m trying to make a list of financial goals and it feels like I’m missing something…it’ll be helpful to read what other people have come up with! Here’s what I’ve got so far: -bigger house when the kids are teenagers -pay off husband’s school loan -college for the kids -enough retirement savings to not have to worry about money -replacement car when the scion dies -braces for the kids -better home/lawn maintenance than we’ve done in the past Any suggestions? I’m toying with adding in a for-later goal to increase… Read more »

PB
PB
9 years ago
Reply to  Whitney

I would suggest setting up a timeline. Which comes first — braces or replacing the car? Then put the biggest percentage towards the first thing on the list, tapering back to the smallest percentage on the last thing. This works like the debt snowball; once the first thing on the list is fully funded, roll the percentage into the next or readjust the whole string, but just keep moving on down the line.

Whitney
Whitney
9 years ago
Reply to  PB

That’s a good idea. I spent the morning messing with numbers, and wound up doing sort of what you suggest: shorter-term priorities are getting taken care of soon, longer-term ones are either getting put off a bit longer or getting partially funded, depending on importance. After price-checking with a friend, I took braces off the list, since we’ll probably be able to pay for that out of pocket when the time comes. (and if not…well, straight teeth aren’t a NEED.) My kids are still very young, so we’ve got a bit of time to play with. I think I’m going… Read more »

Jan
Jan
9 years ago
Reply to  Whitney

I am going to suggest NOT to get a bigger house when the kids are teens. What you should do instead is add on a pool room to your house. Kids will actually spend less time in their rooms and more time with their friends playing pool! My parents did it and when we all left—they tore the room down–lol. We added the room- but it stays for visits:>)

Whitney
Whitney
9 years ago
Reply to  Jan

That’s an interesting idea. One reason I want to get a bigger house (as you rightly guessed) is to make it easier for them to have friends over, and a game room or something like that might be a decent solution if we aren’t able to move just then. We could probably convert the garage if necessary. It could be the “I’ve got to get away from the sibling I share a room with” room. Thanks for the suggestion!

Al
Al
9 years ago

Excellent article. Defining your priorities and knowing what you want is important. It gives you targets to shoot for in your life. Personal finance is all about utilizing your resources efficiently so as to take advantage of the things you really want.

Wade
Wade
9 years ago

Well, my wife and I have our financial goals figured out. They include:

-paying down the mortgage,
-putting money in our retirement accounts,and
-saving for our Hawaiian vacation.

Those are the main goals that we have at the moment, and I am interested in working out other financial goals.

Andrea
Andrea
9 years ago

My top financial goals would be:

Pay off consumer debt (about a year out)
Save for pilates equipment instructor certification
Pay off student loans
Save for wedding stuff

What motivates me is knowing that once I have my consumer debt paid off I can quit my current job and teach pilates full time:) having a light at the end of the tunnel is very important for me.

Tyler Karaszewski
Tyler Karaszewski
9 years ago

My current financial priorities look like:
1) Buy house (in progress)
2) Fund six month mortgage buffer account.
3) Replace wife’s car.
4) Fund 529 account.

If I get all of those done, I’m buying myself a Cadillac or BMW.

Things like “pay bills and buy groceries” are just assumed and don’t get listed as a financial priority any more than I’d list “keep breathing” as a fitness priority.

Nicole
Nicole
9 years ago

Is #4 related to any big changes coming up?

Tyler Karaszewski
Tyler Karaszewski
9 years ago
Reply to  Nicole

Yes!

Nicole
Nicole
9 years ago

Exciting!

DreamChaser57
DreamChaser57
9 years ago

Tyler, you are a hysterically funny although sometimes sarcastic oddball!

I agree, I felt rent/mtg. as a fiscal goal was funny and unnecessary. But now that I think again – in this beleaguered post-recessionary market amid all the lay-offs and crushing debt that American households are carrying – people may be tempted to pay the minimum payments on their cards, because credit card companies are very good at being “Chicken Littles” …the sky is going to fall if we don’t get our money.

J.D. Roth
J.D. Roth
9 years ago

Hey now, you two. I just got my “Team Tyler” and “Team Nicole” shirts printed up. Don’t make me have to chuck them for “Team Tyler & Nicole” shirts!

Nicole
Nicole
9 years ago
Reply to  J.D. Roth

Don’t worry, I still don’t want to see him in his skivvies.

Donna Freedman
Donna Freedman
9 years ago
Reply to  Nicole

If the “Team Tyler” shirt were long enough, you wouldn’t HAVE to see him in his skivvies.

Nicole
Nicole
9 years ago
Reply to  Nicole

Make it so!

Justin
Justin
9 years ago

I think when it comes down to it, finances are all about priorities. For some people, their priority is to be satisfied NOW! Fast food, CDs, movies, clothes, etc. They give you immediate satisfcation, and money’s meant to be spent, right? Others of us are more for the “delayed gratification”. Saving up for our dream house, dream vacation, or the idea of retiring early (60, 50, 40, 30, whatever!) The problem is, most of us don’t really know what our priorities are. So we spend too much on fast food, where we really care more about clothing. Or we are… Read more »

Jonathan
Jonathan
9 years ago

Our current priority is simply to continue to resist any lifestyle inflation as our income grows – we’ve lived on about $4,000 a month consistently while our incomes have risen substantially, and all savings go to income-producing investments. Our spending will probably go up when we have kids, but the philosophy will remain unchanged. We don’t have any specific savings goals because we have everything we need, and if we decide to buy something major (very rare), we have the cash for it.

Hunter
Hunter
9 years ago

This is awkward. I posted a piece on prioritizing today too. It looks like I have a somewhat different perspective.

Justin @ MoneyIsTheRoot
Justin @ MoneyIsTheRoot
9 years ago

I recently wrote an article myself on budgeting, and learning to expect the unexpected. This is sort of in line with what you are saying. You need to know ALL of your expenses, and then seriously prioritize them… its amazing how often people put their wants before their needs.

fairy dust
fairy dust
9 years ago

My brand new shiny goal is to survive divorce. Finances are going from being pretty darn good to being very uncomfortably tight… Not looking forward to it on many levels 🙂

Patti
Patti
9 years ago
Reply to  fairy dust

Fairy Dust– I am so sorry about your divorce. Mine was (finally) finalized. Being able to manage my own money without worrying about someone else spending what was in the account, was a great and amazing change in my life. In the short term, I had to spend a lot and borrow a lot (two moves in a short period of time– I couldn’t afford the place we lived in together on my own, a change in jobs where I now make less money (also pay less rent!)) but I have stabilized and am now paying down my debt, a… Read more »

Roberta
Roberta
9 years ago

I love the worksheet, thanks for the link! Our goals right now are to continue to save for retirement and daughter’s college, and we plan for one big family vacation a year. Usually it’s overseas, but this year it’s Disneyland!

Hey fairy dust, hang in there. I was in your shoes about six years ago. I made some financial mistakes post-divorce, but even so, things got better. If I’d planned more it would have helped, so you’re on the right track!

Kristia
Kristia
9 years ago

Our top financial goals are:

Pay off consumer debt
Save for a new home
Retirement fund
College fund (youngest child)
Pay off college loan (oldest child)

This was a great article. I really enjoyed it and getting ideas from other comments. Thanks for sharing!

Catherine
Catherine
9 years ago

Another good thing about setting goals and establishing timelines is that you can determine where goals conflict with one another. Want to send your children to college and retire early? Braces or a bigger house? If you determine how much these goals will require financially, you may realize that you can’t do both. That’s the uncomfortable reality a lot of folks in their forties and fifties are discovering now, and one of the main reasons so many people’s retirement programs are underfunded.

Roberta
Roberta
9 years ago
Reply to  Catherine

A very good point, Catherine. Retiring early isn’t one of our goals, not just because my husband and I are lucky enough to like our jobs, but because we are saving for our daughter’s college, and I spent over a decade paying off my own grad school student loans. Love what I do for a living now, would still rather retire early, but it’s just not in the cards given my choices!

G Martin Poole Cfp
G Martin Poole Cfp
9 years ago

I plan to send this link to several of my clients that aren’t convinced about the importance of setting and documenting goals. I 100% agree that it is important to identify your goals because then you have something to strive for and can help you make those choices about spending…”does this purchase help me reach my goal or not?”

Jason B
Jason B
9 years ago

I recently did some reflection on priorities as well. I thought I’d share in case it helps anyone else I’m in the 3rd stage and had multiple sub accounts with an automatic monthly saving contribution. However what helped me can help anyone at any stage. If you’re struggling to figure out what your current priorities are or haven’t given it much thought I’d recommend listing out what you pay first and what you put the most $ towards. That’s what you’re treating as most important in your life. Then decide if it should be treated that way. From there you… Read more »

Jason
Jason
9 years ago

It’s funny this post is up here. I read this site quite often. Always getting some great advice or saying, “yeah that works,” to myself. My wife and I moved for my current job, bought a house and a few years later have a couple wonderful kids. My job is now allowing me to be virtual and my wife has a job opportunity elsewhere that will allow us to both work, but have one of us with the kids full time, which is what we think is best for them. We are loosing money in our house and have been… Read more »

chacha1
chacha1
9 years ago
Reply to  Jason

Jason, when you say you are losing money in your house, do you mean that you couldn’t sell it for as much as you’ve put into it? That is, maybe you put down $80K and have since paid out $60K for a total $140K invested, but the market would only support a sale price of $120K. Or do you mean that it’s currently appraised for less than it was appraised for when you bought it? That is, it was valued at $200K when you bought it and is now valued at $160K. There’s a difference, isn’t there? I’ve just heard… Read more »

Jason
Jason
9 years ago
Reply to  chacha1

Hi Chacha1, Yes, and article about this would be great. We bought our place about 5 years ago for $200k. We are going to get it appraised here again to see what we are looking at… but we’ve been told if we could get $160k for it, we’d be doing really well. We owe, $184k on it. We put down $10k originally. If I was able to use hind-sight, I would have rented a tiny place and saved my money for a huge down or total payment for land and put up a yurt. That is where we are going… Read more »

Catherine
Catherine
9 years ago
Reply to  Jason

Assuming you can afford the mortgage payments, you should stay put and see if your wife can get a job locally. Here’s why–even assuming your bank lets you do a short sale, you have no guarantee that you can sell the house. Your credit will be trashed and you still have to pay for moving expenses, rent deposits, etc., and it sounds like your savings are not great. Naysayers, I hear your guffaws, but the real estate market will recover and that is the time to sell.

Nicole
Nicole
9 years ago
Reply to  Jason

Speaking of yurts, Molly on Money is making one out of junk-mail. http://firstgenamerican.com/2011/03/29/how-to-make-a-junk-mail-yurt/ This is actually her second yurt.

J.D. Roth
J.D. Roth
9 years ago
Reply to  Jason

I’ll see if I can find somebody to write an article on this subject. I don’t know much about it myself, but maybe the folks at HSH would be willing to contribute a guest post…

Tim Z
Tim Z
9 years ago

>There’s no point in scrimping and saving if you don’t know what you want to do with the money interesting… I scrimp and save and don’t know what I’ll want to do with the money, but it doesn’t feel pointless. Maybe I will want to start a business, maybe spend on hypothetical kids’ tuition someday, maybe for retirement, maybe to take a year off work and pursue interesting artistic projects or volunteer work. And I can think of plenty more possibilities, but in the meantime the savings are growing and I’m not too worried about how it will be spent,… Read more »

Nicole
Nicole
9 years ago
Reply to  Tim Z

I totally agree with this. Money finds a way to be spent. We used our unplanned saving to finance a year at half pay for sabbatical. Worth every penny, but we wouldn’t have had such a leisurely year off if we hadn’t been saving without a purpose for several years in a row.

That said, I do think that people who have difficulty saving are more motivated if they have a concrete reason to do so.

Tara
Tara
9 years ago
Reply to  Tim Z

I know what you mean – some days it seems like I’m saving for no reason. But in your twenties, saving is to build wealth for what you don’t know will happen in the future. I made a retirement age spreadsheet that tells me based on returns and contributions when I can retire. By myself and with no kids, I could retire at 50. One way to interpret that is that I could do whatever I want at 50, but why wait? That number tells me that I could work at a slower pace starting at 40 and then go… Read more »

Laura in Cancun
Laura in Cancun
9 years ago

This is a hard one for me! My husband and I did a list of things we want to do, and it was a mile long! I threw it away just yesterday because it was too overwhelming. If I had to narrow myself down to top current priorities, they would be: -start saving to buy a house within 5 years -buy a car with cash before having our first kid -start investing -build an emergency fund (this is my least favorite haha) But what really motivates me is the idea of someday owning a large, resort-style home on the beach… Read more »

olive oyl
olive oyl
9 years ago

I’m in a similar position. I am 28 years old and a few months away from paying off my student loan debt, after which I will be debt free(!) This means extra cash flow, and I am thinking about getting a roommate to reduce housing costs. But for what purpose? I have already established a healthy emergency fund and am investing about 25% of my take home for retirement. That question of not knowing the purpose is also part of the excitement — part of financial freedom. To me, financial freedom is being able to make reasonable life choices that… Read more »

Carla
Carla
9 years ago

1. My biggest goal is to pay down medical debt. Its a little hard to get my head wrapped around it because it grows monthly. I do want to reduce it by 80% somehow.

2. Build an emergency fund.

Nicole
Nicole
9 years ago
Reply to  Carla

Have you called to negotiate the medical debt? They’re often able to reduce it.

Carla
Carla
9 years ago
Reply to  Nicole

I’ve done as much as I could. I think part of it is because its chronic (not just a one time thing), they are not able to do much.

This is all after my insurance covers their part, etc. I still have my monthly premium on top of that which is not cheap.

Hannah
Hannah
9 years ago

My Goals:
– Pay Off Debt!
– Increase savings/retirement accounts.
– Pay for a nice vacation yearly (in cash).

Long-Term Goal:
– Save for a really nice down payment on a home (buy in 2-3 years)

Lawrence Bergfeld
Lawrence Bergfeld
9 years ago

One should keep their bank statements and trace every month how much cash comes in and how much goes out.

Lawrence Bergfeld

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