How do you prioritize your savings and financial goals?

Here are four key guidelines to help you prioritize your saving and balance your long- and short-term financial goals. 1) Create a budget. 2) Build an emergency fund, then prioritize long-term goals. 3) Save separately for short-term goals. 4) Boost your saving and be disciplined about spending.

Balancing competing priorities

Let's face it: Most of us have a lot of competing financial priorities. Buying a home. Saving for retirement. Sending a kid to college. Maybe even taking a vacation now and then.

Wondering how you can balance these different objectives? To do it, you need a plan, and the first step is to prioritize your goals. Here are some tips to help you set those priorities and manage your saving and investing for both short-term and long-term goals.

To understand how much money you can save every month, you first need to figure out how much you spend:

• Calculate your net income with any voluntary retirement plan contributions that you might already be making.
• Make a list of all your expenses, including monthly cash and credit card purchases as well as expenses that occur regularly but not every month. Then, organize the numbers by categories—groceries, utilities, health care, entertainment etc.
• Now, compare your net income to total expenses to see how much income you have that could be set aside for savings.

• First, the emergency fund: Financial advisors often recommend that you tuck away enough money to pay your living expenses for at least 3-6 months.
• In most cases, your next priority should be saving for retirement. This may take priority even over a child's college fund. After all, paying for retirement could be the biggest expense of your life, and there's nothing similar to a student loan or financial aid for retirees.
• If your employer offers a retirement plan like a 401(k) and your company will match some of your contributions, be sure to contribute enough to get the full match. The employer match is like extra salary, or free money. Don't pass it up!
• If you contribute enough to get the full employer match and can still save more, consider putting the extra savings into an IRA, which is a tax-advantaged retirement account that you set up yourself.
• After taking care of your retirement saving, you can prioritize saving for your kids' educations. There are several ways to save and invest for future education costs while getting potential tax breaks, including what's known as a 529 Plan, a Coverdell Education Savings Account, or a Custodial Account.

What counts as short term? It might be things like a new home, weddings, vacations, home remodels, large consumer items like cars, and similar purchases.

• Start by making a list of goals for you and your family that you want to achieve in the next five years. Then rank them from most important to least.
• You might open a savings or investment account for your short-term objectives or even open a separate sub-account for each goal. Then, make weekly or monthly contributions with any additional money that you can earmark for savings. A savings account, which offers the potential for higher interest earnings over the short-term, is worth considering for this purpose.

How much you can save obviously depends on your individual circumstances, but it can be helpful to have a target—say 10-20% of your income.

• If your expenses are too high to save that much, think about how you can cut back on non-essentials and luxuries. Some ideas include finding free entertainment, cooking from scratch, making your home more energy efficient, and much more.
• Make your saving automatic by setting up recurring transfers to your investment and savings accounts. If the money goes straight into your savings accounts before you see it, you might be less tempted to spend it.