How to Articulate and Prioritize Financial Goals

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When people initially reach out to myself or other financial planners, it’s typically centered around particular financial questions, goals, or issue they need help with at that particular point in time. Other times, it’s a combination of all these things, as their situation has become too complex for it to be worth their time and stress to manage themselves. Yet, one of the fundamental ways that financial planners help their clients is by helping them better articulate and prioritize their financial goals. For example, if someone wanted to buy a vacation home but was saddled by debt, it’d be important to have a realistic conversation with them to prioritize the debt first, prior to pursuing a vacation home. In turn, helping them understand the potential risks of failing to prioritize in that order. This article will explore how to better articulate and prioritize financial goals in an actionable and sensible way!

Foundational Financial Goals

First and foremost, it’s important to tackle foundational financial goals that in turn, allow you to pursue more lifestyle-focused goals over time. For example, in the intro, prioritizing paying off debts (foundational goals) prior to buying a vacation home (lifestyle goal) greatly reduces the risk of overleveraging your balance sheet and potentially putting your finances in a compromising position where debt could spiral out of control. Ultimately, setting you back in your endeavor to keep a vacation home AND pay off debts.

Common foundational goals include establishing an adequate emergency fund, paying off high-interest debts, making contributions to a retirement plan, and building strong financial habits.

Establish an Emergency Fund

Boring as it may sound, every strong financial plan includes an emergency fund. It’s the first line of defense against the unexpected. Without an emergency fund, you could be forced to take out debt, pay absurdly high-interest rates (think credit cards), or even dip into retirement savings (of which there are highly unfavorable tax penalties).

Typically, an adequate emergency fund is anywhere between 3-6 months worth of living expenses. Depending on your situation, it could be more or less, the key being, there’s liquid cash available and ready should any large unexpected expenses arise.

The best way to start building an emergency fund is to set aside any bonuses, tax returns, compensation increases, and/or automate a transfer to a savings account each pay period. Automating a transfer to an emergency fund ensures that you’re making progress towards fulfilling the account and allows you to set a defined time until the goal is reached. For example, getting an emergency fund in place is typically one of the first goals you’ll want to tackle, therefore doing it in a time efficient manner is important. Let’s say you need $20,000 to fulfill your emergency fund adequately. Over the course of 1 year, you can automate a transfer to the emergency fund to align with pay that will allow you to reach the $20,000 mark after 1 year of contributions.

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Eliminating High-Interest Debts

The most common form of high-interest debt to ALWAYS avoid is credit cards. It never makes sense to hold a balance on a credit card, hence the importance of having an emergency fund. If you’ve found yourself having trouble paying off credit card debt, first develop a plan towards paying it off. It starts with addressing the underlying issue of WHY you found yourself in debt trouble. Oftentimes, it’s simply spending more than you make on a month to month basis. Establishing a budget and cutting expenses that don’t align with things that actually add value to your life is a great place to start when trying to cut back spending.

Once the underlying issue is addressed, set up automatic payments towards your debt. If you’ve successfully cut back spending and allowed yourself adequate cash flow to put towards credit card debt, set up an automatic payment to align with your pay. Again, automating transactions ensures that you’re making tangible progress over a set amount of time. If your goal is to pay it off within 1 year, set the payments and budget in line with that time frame!

Contributing to Retirement Accounts

While the first two foundational financial goals are important to tackle first, it doesn’t mean you can’t start working towards other congruently. The earlier you’re able to start investing in retirement accounts, the more likely you’re able to be financially secure in the future. The IRS set’s limits on the amount that can be contributed on a yearly basis to tax-advantaged retirement accounts, therefore you can’t “recapture” missed prior year contributions.

If your employer offers a retirement plan, do they also offer a match? If so, don’t let the free money get away, in most case, it makes sense to contribute up to a minimum, to the matching percentage. Even while you may be working towards building an emergency fund and paying off credit card debt, it can still make sense to make these contributions.

Building Strong Financial Habits

Although it’s a less tangible goal, having strong financial habits in place helps accomplish all other foundational goals. That includes having an understanding of your monthly cash flow, avoiding high-interest debt, investing for your future self, and continuing to increase savings/investments over time.

If you’ve received a compensation increase recently, ensure you’re not spending the entirety of the increase in income. Instead, make sure youn increase retirement contributions or transfer funds to other investment accounts. This will ensure that over time, you’re saving and investing in line with your growth in lifestyle expenses. Ensuring that when it comes time to “retire” or leave your primary source of income, you’ve adequately saved enough to continue to provide for your lifestyle.

Lastly, when it comes to investing, ensure you’re taking a long-term outlook. No one can predict what markets will do in the short-term, yet what we do know is that staying patient, invested, and keeping costs low over the long-term can help build considerable wealth. It doesn’t happen overnight, hardly anything that requires time and patience does though, therefore don’t fret when the next market correction occurs. Stay the course and keep your sights on the long-term!

Lifestyle Goals

Once all your foundational financial goals are in place, you’re able to start making progress towards goals that are more lifestyle oriented. That could include, buying a home, saving for children’s college expenses, buying a boat, or taking an annual trip overseas once per year. The key to prioritizing lifestyle goals is through visualizing your ideal lifestyle now and in the future.

If you and your spouse are ready to settle down and start a family, maybe it’s time to consider purchasing a home for the stability it provides. If starting a family isn’t on the top of your list, maybe setting aside funds every month to fund a large annual trip with friends or family. Whatever your lifestyle goals may be, aligning your cash flow with how you’d ideally like to live your life is the best way to accomplish them!

Of course, ensuring that foundational goals are not forgotten and maintained through this process is extremely important. Living an extravagant lifestyle that ultimately can’t be supported by your finances, won’t lead to long-term success.

Take the time to write down, discuss, or think about what really matters to you in your life, today, and what you hope to accomplish in the future. With these goals in mind, prioritize. Our finances are a tool for achieving all these things, the key is to make progress and ultimately accomplish goals that truly add meaning and value to you!

The Bottom Line

Personal finances and goal setting are intertwined when it comes to financial planning. Yet, it doesn’t have to be complicated. Tackling the obvious foundational goals I’ve outlined in this article is a great starting point for anyone looking to gain control over their finances. Once they’re in place, it provides the peace of mind to work towards goals that are uniquely valuable to you. Aligning your money with your goals can bring about a sense of purpose, happiness, and fulfillment. Start your financial plan today!

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Levi Sanchez, CFP®, CPWA®, BFA™
Levi Sanchez, CFP®, CPWA®, BFA™
Levi Sanchez is a CERTIFIED FINANCIAL PLANNER™, CERTIFIED PRIVATE WEALTH ADVISOR®, BEHAVIORAL FINANCIAL ADVISOR™ designee and Founder of Millennial Wealth, a fee-only financial planning firm for young professionals and tech industry employees. Levi’s been quoted in the New York Times, Business Insider, Forbes, and is a frequent contributor to Investopedia. He is an avid sports fan, personal finance and investing geek, and enjoys a great TV show or movie. His mission is to help educate his generation about better money habits and provide financial planning services to those who want to start planning for their future today!

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