Looking at your finances and trying to figure out how to deal with multiple goals can be frustrating. We want it all – who doesn’t? But for most of us it’s not that easy. Which goals do you save towards first, second, and so on?
- How do you prioritize retirement savings, children’s education, a new vehicle and mortgage pay down?
- How do you pay off debt and still have savings?
- How do you invest in your future and deal with current obligations?
It’s tough to manage all your short, medium and long-term financial goals at once. On one hand, focusing on just one thing can leave you financially vulnerable in some areas. On the other hand, spreading your finances too thinly in order to focus on all your goals at once isn’t very effective either.
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You have to weigh short-term desires against long-term goals and factor in unexpected expenses that seem to pop up regularly.
Here are some tips to manage multiple financial goals.
Make a list
The first step to managing all your goals is to make a list. Rank them in order of importance and be as specific as possible, using actual numbers and descriptions.
Set a timeline
Think about end dates for each of your priorities. Categorizing goals into different time frames helps you get a picture of the time sequence involved, even if some are far into the future. When goals are viewed on a time line it is easier to get an idea of how they might be funded and also identifies periods when your budget might be strained.
Determine how much money you’ll need and divide by the amount of time you have. Certain goals have hard deadlines, e.g. your children will likely go to university immediately after they graduate from high school. Other goals have a broader window of time, e.g. buying a vacation home within the next five to ten years.
Some financial software, such as Mint.com have goal trackers. Or, you can use a piece of paper to map it out.
Create a budget
Take a look at your budget. If you don’t have a budget, take some time to track your expenses. This will give you some insight into your spending habits and you can plan better. Are you spending on what matters most to you?
Create a savings category within your budget and calculate how much you can allot to your financial goals. Then look at your timeline and determine how much money you need to put to each goal each month. Is your budget in alignment with your timeline? If not, then see where you can cut back and what sacrifices need to be made.
Different people have different priorities. What savings goals are the most important to you? Part of the process is deciding how long you can wait. Remember, setting priorities mean making choices. Some goals may have to take a back seat while you work on hitting your top targets.
James and Joanne have a number of goals that range from short to long term.
|1. Pay furniture loan||$3,400||2017||$ 285|
|2. Replace deck||$4,000||2017||$ 330|
|3. Vacation||$12,000||2019||$ 315|
|4. Replace Joanne’s car||$20,000||2021||$ 425|
As price tags rise and time horizons push further into the future, it becomes harder to keep financial goals into perspective. It’s helpful to break down long-term goals into smaller sub-goals.
|5. University education for Tiffani||$60,000||2030||$ 360|
|6. Retirement savings||$500,000||2041||$1,700|
The couple needs to examine the impact of their goals on their budget and financial resources. For the above list they need $3,415 a month, but they have determined that they can allocate $2,300 a month to savings.
Their financial resources are limited so they must adjust or prioritize their goals to bring them into line.
The furniture loan is a “don’t pay for 12 months” deal and if they don’t pay by the deadline there will be financial consequences, so it’s a top priority. The deck replacement, and car purchase could be pushed back, but they have planned an anniversary get-away to a favourite spot, so it’s still high on their list.
The savings for their long-term goals could be reduced until more money becomes available.
Belt tightening is always a good way to save more money, but you can only take it so far, especially when you’re raising a family.
If it feels like you’re not contributing as much as you’d like, consider creative ways to beef up your savings – hold a garage sale, sell your unused clothing on consignment, start a change jar.
Watch your savings grow
Once you’ve decided on your savings amount, make it easier with regular automatic transfers. Some financial institutions allow you to set up multiple savings sub-accounts that can be allocated to specific goals.
Naming your accounts gives them a specific purpose, and you can see how the money is accumulating towards your goal. Check your progress every month. It may inspire you to save even more to hit your goals faster.
We all have different financial priorities depending on our income, family situation and life goals. When you create goals for yourself, you define what you want out of life and also increase the probability that you will achieve it. But, it has to work for you and your budget.
It’s also important to understand that your priorities are not always fixed and you need to be flexible. You never know what might happen or what new savings goals might arise. Life changes, work changes, and relationships change, so let your list be a guide and re-evaluate as necessary.
How do you manage multiple financial goals?
What tips can you share?