Prioritizing Your Goals Within Your Financial Plan

Time to read: 6 Minutes

Goal-based financial planning allows you to design and implement a plan that is optimized to help you reach your goals.

Of course, when you have a variety of goals, it can be difficult to determine how each of them fits into your plan. You may wonder which goals you should allocate the most money to, if it’s really possible to fund more than one goal at a time, and how you should account for milestones that naturally fall into different time horizons.

It’s not only possible, but typically necessary to plan and allocate funds for several goals simultaneously. The key to doing it the right way is understanding how you should prioritize your financial goals.

Organizing Your Goals into Three Categories.

Once you know what your financial goals are, the next step is organizing each of them into one of three categories: fundamental goals, significant goals, and dream goals.

Fundamental goals.

The goals in this category aren’t just achievements you’d like to work towards, but items that are absolute essential in any financial plan. This can include:

• Building an emergency fund with enough money to cover at least three months of expenses
• Paying down high-interest debt
• Ensuring that your expenses and lifestyle match your income
• Retirement contributions that, at a minimum, meet the amount your employer will match
  These goals are considered fundamental because they protect your financial health and current lifestyle.

Significant goals.

While fundamental goals are designed to protect your financial health if something unexpected happens, significant goals are centered around milestones that build long-term stability and fund major life choices. These goals can be short or long-term and focus on supporting your ideal day-to-day life in connection with your individual and family values.

Significant goals may be:

• Saving for a down payment for a home
• Saving for needed home renovations
• Educational savings plans for children or grandchildren
• Increasing retirement contributions
• Paying off a mortgage or other low-interest debt

These goals are centered around building wealth, while also providing you with your desired day-to-day lifestyle.

Dream goals.

Think of dream goals as a wish-list. The items in this category won’t necessarily affect your day-to-day life and aren’t focused around growing your wealth but instead are intended to help you achieve your ideal lifestyle.

Where fundamental goals are centered around financial necessity and significant goals focus on day-to-day lifestyle and planning for the future, dream goals focus on luxuries and lifestyle enhancements.

Goals in this category may include:

• Buying a luxury vehicle
• Upgrading your home
• Home renovations centered more on style or adding space than necessity
• Purchasing a second home or a vacation property
• Luxury vacations
• Purchasing luxury items
• Purchasing equipment for an expensive hobby

While dream goals are a lower priority than the goals in the other two categories, they can and should still be accounted for in your financial plan and are often great motivators.

Assigning Time Horizons to Each Goal.

Just because something is a fundamental or significant goal doesn’t mean it needs to, or even realistically can, be funded in the short-term. After all, saving for retirement is fundamental, regardless of how far away the milestone is.

That being said, many of the goals in the “fundamental” category, such as building an emergency savings account and paying off high-interest debt, should have short time horizons.

The time horizons for other goals will depend largely on what the specific goal is, regardless of what category it’s in. For example, saving for a down payment and allocating money for a young child’s future education are both significant goals, but likely have very different time horizons.

Meanwhile, there may be certain dream goals, like a luxury vacation or experience, that will naturally take place before a child will need or be able use any higher education savings.

Build Your Plan Around Your Highest Priorities.

First and foremost, your financial plan should prioritize saving for the goals that directly impact your financial health and well-being, now and in the future.

The first step is determining how much money you can allocate each month to your essential goals, and where that money is coming from. Generally, most of these goals will be funded directly from your income, with employer matched retirement contributions likely being automatically deducted from your paychecks.

Once you have that plan in place, move onto the significant goals. Funding these goals may be a combination of investing, saving, and budgeting to free up more available money each month. Determine how much money you believe you can realistically put towards each of these goals.

The dream goals are the final ones to be accounted for, with any additional funds or left over money each month going towards them.

Account for Flexibility.

While sticking to the financial plan you make is important, it should never be considered final. A variety of factors will affect your circumstances, timelines, and goals. There may be market changes, unexpected personal events, loss of income, or windfalls, all of which can affect what your goals are and when you want to, or can, achieve them.

A large unexpected medical expense may require you to delay purchasing a sports car. A large increase in income may enable you to fund a down payment faster than you realized. Achieving one of your goals, especially a short-term one, may allow you to allocate more money towards other goals.

This commonly happens after the emergency fund, a goal that should be heavily prioritized, is funded. While it’s important to continue to monitor the account and add money for inflation and lifestyle changes, the regular contributions likely won’t be as significant as when it was initially being built.

The money that was earmarked for the account each month can now be reallocated, either to fund a significant goal faster or to start working towards dream goals.

Determining your goals is a key component of creating a financial plan that is optimized for your circumstances, needs, and ideal lifestyle. By prioritizing these goals correctly, you’ll be better positioned to achieve financial stability, plan for the future, and work towards your ideal lifestyle.ndsets that drive financial success. To learn more about creating a strategic financial plan specific to your goals and lifestyle, contact us today!