How to prioritize multiple savings goals

Saving for retirement may not always be your top priority. That's OK: With a little bit of planning, you can enjoy your life now and still retire one day.

What does a life well lived mean to you? Maybe it's the adventure of setting foot on all 7 continents. Maybe it's the freedom of living without any debt whatsoever. Maybe it's the legacy of funding a child's education. Only you can decide.

What we can tell you, however, is that achieving all of your life goals will take a bit of financial discipline. Possibly even a few calculated risks. And definitely a plan.

So let's help get you on a path to start saving for your life goals—whatever they may be—today and in retirement.

Tip 1: Take stock of what's important to you

"Priorities lead to prosperity" is an old adage. Start by asking yourself: How do you want to live your life now and in the future? Then, give your priorities a cold-water dose of reality.

We're not saying be thrifty all the time. But be realistic about how your income matches up against your short- and longer-term goals. You might have to think creatively to make everything jive. For instance, instead of taking a few months off to live in Bali, could you be happy enough with a 2-week vacation—with the added peace of mind that you're making progress on other goals?

You'll also want to talk through your priorities with a partner/spouse (if you have one), especially if you share joint accounts. You may find that you'll need to reorder some of your goals, values, and money habits in order to find unity with the person you're sharing your life with.

Still don't know where to start? No worries. Here are 3 core elements of any savings plan:

  1. Fund an emergency account to cover 3–6 months of day-to-day expenses. This will help ensure an unexpected expense, like a medical bill or auto repair, doesn't derail your dreams.
  2. Strive to contribute enough to your workplace retirement plan to take advantage of any employer match or, if you don't have one, start funding your primary retirement account.
  3. Eliminate toxic debt, which is the high-interest kind. This may include debt like student loans and credit cards with interest rates above 8%.

With the critical stuff taken care of, you can then think about funding your planned short-term goals (within 2–5 years), contributing to education accounts, and funding medium-term goals (more than 5 years out).

Again, your list of priorities may evolve over time—and your dreams may get even bigger. That's OK. The important thing is to get started and take ownership of your priorities now so you can truly live life on your terms.

Tip 2: Make a plan—and stick to it

So now you've got a list of achievable goals that reflect your values, and your partner is on board. Good work. The next step is to go from blue-sky dreaming to rolling up your sleeves: It's time to get tactical.

You'll need to determine the best strategies for each savings goal. This one will take a little research, but it's worth it in the long run. When you assign a purpose to your savings, you can then determine the best account to grow your money, as well as how to invest it.

Saving for retirement that’s decades away? Once you've thought about your own risk tolerance and time horizon, a good option may be putting your money away in a tax-advantaged account like a 401(k) at work or an IRA. And if you have many years before you retire to ride out market swings, you may want to consider investing for long-term growth. That means you may need a larger portion of stocks in your portfolio.

But what if you are also saving for a down payment on a house in 2 years? Since you'll need that money soon, you may want to consider parking it where you can be confident it will be there when you need it. So, certificates of deposit, a.k.a. CDs, or some high-quality bonds could be an option you may want to consider, because our analysis suggests they are typically lower-risk investments.

Tip 3: Set yourself up for success

Fair warning: Staying on track with your plan is going to be difficult. There will be unexpected expenses and temptations along the way. The best way to avoid these detours is to commit to a handful of healthy money habits.

How do you make sure you stay on track? Automating your savings is a simple trick. Setting up an auto-transfer from your paycheck to your savings account ensures your savings can accumulate predictably. The "out of sight, out of mind" approach means you'll likely not even miss the money you end up saving.

Another trick is to name your accounts something specific and inspirational. If you're saving for a vacation, name your account "Tropical Getaway" or something equally enticing so that you can more easily visualize your goal and get excited about it.

Finally, give yourself small rewards at important milestones. These small bits of positive reinforcement will keep you motivated and break up long-term goals into more frequent checkpoints.

Tip 4: Find a balance with your other goals

Time is a key ingredient in building retirement savings. The more you're able to save early on, the more time you'll give it to grow—and the better off you may be in retirement. If you choose to save less now, you have 3 choices: Save more later, work longer, or spend less in retirement—or some combination of the 3 options.

How you prioritize saving for retirement with the rest of your goals is something only you can decide. For instance, maybe you want to buy a new home in a great school district: It could increase your quality of life, improve your children's educational prospects, maybe it even provides a better commute to work—all perfectly understandable.

It all comes down to balancing the risks of saving less now with the rewards of enjoying your life.

Tip 5: Do the best you can—but plan for the unexpected

Few things in life go as smoothly as you would like, and the best choice for the long term may not be practical or possible in the short term. After all, no one is a retirement saving robot. You can successfully save for retirement even if it's not your highest priority all the time. To pull it off you have to navigate the trade-offs by making informed decisions about what you want now and what you'd like in the future.

Wrapping up

Here's a hard truth: The longer you postpone retirement savings, the harder it will be to make up those savings down the road.

But the good news is this: You don't have to sacrifice a fulfilling life today while you build for a better tomorrow. A little planning can put all of your objectives into perspective and help you prioritize.