Prioritizing the demands for your finances — Identifying your financial goals can help

Since no one but the government prints money, it’s likely that your income is a finite resource. So it can be challenging to figure out how to prioritize competing demands for your money. Should you save for retirement or pay for your kids’ college? Is it better to pay off credit card debt or stockpile ready cash for emergencies? Ideally, you’d want to take care of everything at once, but since that’s not realistic, let’s explore ways you can work through your expenses and help get yourself on track.

What financial goals are on your list?

The first thing you need to do is determine what your goals are. Depending on your stage of life, you could have any or all of these financial objectives:

• Buying a home
• Creating an emergency fund
• Paying down credit card debt
• Paying monthly bills
• Paying your college loans
• Saving for retirement
• Saving for children’s college

You likely have other financial goals as well. Only you can decide what goes on your list, but these are some common financial goals.

What to fund when?

One way to tackle the question of what goals to fund first is by degree of urgency.

1. Monthly bills — Paying your regular, monthly bills comes first. This includes your college loans, because even if you go bankrupt, those loans stay on the books. But don’t forget to include “paying yourself” among your monthly expenses. Get in the habit of paying yourself regularly, so you can use it to save for life goals. It’s easier to fritter away money if you leave it in your checking account instead of moving it to savings.
2. Emergency fund — Experts are divided over how much to have on hand, especially in the event of a job loss. Some say three months living expenses, others say six months, and after the 2007 economic downturn, some even recommend having a year’s worth of expenses covered. Saving 12 months of expenses is a tall order — especially in the face of credit card debt and saving for retirement. Consider setting an interim goal first. Aim to put $1,200 to $1,500 aside. That could at least take care of an unexpected car repair or replacing a major appliance. Then work on building those larger cushions.
3. Pay down debt — Paying off credit card debt needs to be a high priority. You do not want to enter retirement carrying credit card debt. It’s some of the most expensive money out there. Think of it this way. If your savings account only pays 0.5 percent (which is actually a pretty good rate these days) but your credit card interest rate is 14 percent, you actually save 13.5 percent more by paying off the credit card instead of putting the same amount in the bank. But don’t forget — to successfully beat credit card debt you must also stop adding debt through more credit card purchases. The goal is to pay off your cards every month.
4. Save for retirement — Many people are tempted to put paying for college ahead of saving for retirement. Don’t. If your children need to take out loans for college, they still have their entire working life to pay them back. You, however, have much less time to fund your retirement. And if you don’t put enough aside, you may end up having to rely on your children’s help when you stop working. So the better prepared you are for retirement, the greater favor you may actually be doing your kids. Of course you can do both, save for retirement and pay into a college fund. But don’t save college money at the expense of funding your retirement. If your company has a retirement savings plan such as a 401(k) or a 403(b) make every effort to max that out.
5. Buy a house, save for college, fund a dream — By the time you get to this group of goals, the priorities become more personal. You can look at your own situation, rank the importance of these kinds of goals and decide for yourself how to prioritize them.

   One habit common among many wealthier people is the ability to delay gratification. Think before you spend and prioritize where and how you spend. It could make a positive difference to your bottom line.

Visit Voya's Budget Calculator to help you make your own personal budget.