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When you have multiple financial goals, you’ll need to prioritize. Read on for three ways to decide what to focus on first.
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Setting financial goals is important for your future. And, chances are good, you’ll have multiple goals you want to work on.
While you can often aim to accomplish many different things simultaneously, like investing in a brokerage account for retirement and paying down debt, you often end up needing to prioritize what to do first.
There are three different approaches you can take to decide which goals to prioritize. Here’s what they are.
1. Consider what will have the biggest impact on your net worth over the long haul
While there may be many things you want to accomplish with your money, ultimately the underlying purpose of those objectives is often to end up wealthier. So, think about what will make the biggest impact in achieving that objective.
For example, paying off high-interest credit card debt as quickly as possible can save you a ton of money — far more than paying off your mortgage early. If you eliminate a monthly credit card payment, you can also then redirect that money toward other goals.
On the other hand, investing can leave you with more wealth in the end than paying off your mortgage early. Since you can reasonably expect a 10% average annual return by investing in the S&P 500 and your mortgage interest rate is likely well below 10%, you should probably focus on devoting more of your money toward investing rather than making extra mortgage payments.
2. Think about what you’re most motivated about doing
While it makes financial sense to put your focus on accomplishing goals that will improve your net worth, managing money isn’t just about math. When you make everyday spending and saving decisions, your motivations matter as well.
The reality is, if you are excited about accomplishing a particular goal, you’re much more likely to do what it takes to make it happen. For example, if you really want to pay off your mortgage and own your home free and clear, you may be willing to give up dining out or even work some extra hours to get money to do that. But if you aren’t as excited about investing for whatever reason, you might not be willing to put in the work to invest more.
In this situation, even though you’d theoretically be better off devoting extra cash to your investments rather than early mortgage payoff, you might actually end up in a better position if you focus on getting rid of your home loan since you’re more likely to do what it takes to accomplish that quickly.
3. Consider how difficult accomplishing each goal will be
Finally, you may want to think about how difficult accomplishing each financial goal will be. For example, if you’re working on paying off a few different debts and you could repay one very quickly and the other will take years to repay, you may want to work on paying off the debt with the lowest balance first. This would help you score a quick win that could keep you on track.
This doesn’t mean you should give up on accomplishing your hardest goals, especially as they are usually your most important ones like saving for retirement or amassing a large enough down payment to buy a house. But if you can devote your extra money to accomplishing some simpler things first to help you develop the habits you need to make these big goals happen, then it may be worth doing that — especially if you’re having a hard time with money management.
Ultimately, the best approach to deciding which goals to prioritize is going to vary depending on your situation. And, you can work on more than one thing at once. Just be sure you’re making a conscious plan for where your extra money should go and not trying to do too much at once so you end up accomplishing nothing at all.
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