How to prioritize savings goals

Quick insights

• Savings goals are typically tied to future aspirations and generally change over time. 
• One way to prioritize your goals is by categorizing them as necessity-driven, quality of life or aspirational.
• Automating savings transfers may help you consistently put money toward your savings goals.

Having money in savings is one way to create financial stability and provide a safety net in times of financial stress. In addition, savings accounts can serve as a sign of your future intentions because savings accounts are often tied to ambitions and goals.

There is a wide range of things people may want to save for, like buying a new car to saving for retirement. If you are planning to save for multiple things, you may be wondering how to prioritize and fund your goals. Read on to learn some ways to identify and prioritize your savings goals.

Types of financial goals

Financial goals differ from person to person and may change over time. Your goals may be influenced by a number of factors including your age, income and personal circumstances.

Your goals can be immediate or tied to plans that are much further away. When examining your goals, it might help to think of them in terms of their timelines, including:

• Short-term goals: These are goals that are likely to happen within a year. Examples include saving for a vacation or building an emergency fund.
• Medium-term goals: These are goals that are 2 to 5 years out. They tend to be bigger purchases and include things like saving for a down payment on a house or funding your education.
• Long-term goals: These goals are forward-looking and happen several years or even decades down the road. This can include retirement, paying off a mortgage or saving for your kid’s college education.

Comparing your progress toward a goal with its associated timeline may help you decide which goals need the most attention and funding at any given time. If you're saving for multiple goals at once, creating a timeline is one way to help prioritize them.

Categorizing your goals

Another way to help you determine which savings goals to prioritize is to categorize your goals by urgency and importance. This can look like categorizing your goals in one of the following ways:

Necessity-driven goals

These goals are generally essential for maintaining a basic standard of living and providing some financial security. They are generally prioritized above other goals because they address immediate and fundamental needs. Goals in this category may include funding your emergency savings and saving for debt repayment.

Quality of life goals

This type of goal is a savings objective that goes beyond your necessities. These goals are often tailored to individual desires and aim to improve your quality of life. They can include home ownership, travel and education, to name a few.

Aspirational goals

Aspirational goals represent your ambitions and dreams. These goals typically reflect personal or professional aspirations, which may include owning a business or funding a certain lifestyle in retirement.

Budgeting and planning for savings goals

Before you set savings goals or prioritize how much you put toward each goal, it may help to first assess your financial situation. This includes reviewing your income, expenses, debt and savings to get a complete picture of your finances. If you don’t already have one, this may be an opportune time to create a budget.

Knowing your budget can help inform the amount of money you have available for savings and individual goals.

Regardless of how you prioritize your goals, you may end up adjusting them as your personal circumstances change. Having flexibility baked in can help you to stay the course when contributing to your savings goals.

Paying down debt vs. saving

You may have the dilemma of choosing to prioritize paying down debt or saving money. Following a budget—like the 50-30-20 rule—or using a debt payoff strategy can provide guidelines on how much to put toward debt versus saving.

If you’re unsure, though, there are a few considerations to help you determine whether to prioritize debt or savings:

• Interest rates: Debt with a high interest rate could result in greater costs for the loan. If more of your payment is going toward interest rather than paying down the principal, you may want to prioritize paying off this debt.
• Safety net: If you don’t have an emergency fund, it may be challenging to pay for unexpected financial hardships. Having an emergency fund in place may help you more easily manage financial hiccups and unexpected expenses without taking on additional debt.
• Type of debt: Some debt, like a mortgage or student loan, can fall under the category of “good debt.” Good debt means you're borrowing money in a way that may help you grow personally and/or financially. When managed wisely, good debt can be a net positive for your finances.

A balanced approach—one that allocates a portion of your income to both debt repayment and savings simultaneously—is one way to help achieve both goals.

Automating savings transfers

Once you’ve determined which savings goals to prioritize, you can create separate savings accounts for each as well as automate your savings transfers.

Automating your savings may help you maintain consistency in saving, reduce temptation to spend money that is meant for savings and ensure that your priority goals are funded first.

By automating these transfers, you may be able to grow your savings on the schedule that you set. And by having separate accounts for each goal, you can monitor how close you are to hitting your individual goals.

In summary

Prioritizing your goals may help you see which ones to fund first, and which ones are better suited as long term goals. Categorizing your goals as necessity-driven, quality of life and aspirational can also help determine which goals are most important to you. And determining the timeline associated with your goals may provide clarity on how much you need to fund your savings goals.