How to Prioritize (and Achieve!) Multiple Savings Goals

Do you feel like you have a million financial goals but no idea how to actually reach them? Perhaps you are saving (or hoping to save) for a dream vacation you’d like to take next year, a new car, a new phone, and retirement. That’s a lot of different savings goals. It’s tempting to just shovel money into your savings account when you have a little extra and call it good.

Why You Should Prioritize Your Savings Goals

However, that’s not a great idea for a few reasons. First, if you haven’t been clear with yourself about what your savings are for, it’s easy to dip into your savings whenever you feel like it. You may totally forget about that phone you desperately need or that trip you’ve been dreaming of when you hear the Beyonce concert is coming to town. Understandable! If you’re clear on what your savings are for and if you get excited about those goals, you’ll feel less tempted to drain your account at the first opportunity.

Second, not establishing specific savings goals usually means that you have no idea if you’re actually on track for your goals. When can you take that trip? Or buy that car? Are you on track for your retirement savings? Should you go ahead and buy that phone if you have enough money for it? Or will that derail your other goals? And are you saving enough money? It’s hard to answer these questions if you haven’t gotten specific.

This is why getting specific about your savings goals and prioritizing them is so important. Doing so helps you preserve your savings for meaningful purchases, illustrates how much you need to save, and clarifies when you can pull that money out for your goals.

How do you prioritize savings goals? There are a few key questions to help you figure this out.

1.       How long do you have to save for these goals?

Get specific on your time horizon. How many months and years until you’d like to go on a vacation/buy a car/retire/etc.? You will use the answer to this question (along with the answer to the cost question below) to help prioritize your goals.

Keep in mind that it may be tempting to neglect a goal that’s farther down the road. However, you’ll actually get the most bang for your buck by prioritizing those long-term goals if you are investing your savings. Thanks to the benefit of compounding, your money will go much farther if you invest it earlier. Want more info about compounding? Check out my post on saving for retirement. 

2.       What is the total cost of these goals?

Generally, the closer in time and the more expensive the goal, the more you’ll need to prioritize it in your savings. Of course, assuming all of your goals are of equal importance.

3.       What is the monthly cost of these goals (i.e. how much should save per month to reach your goal)?

The next step is to divide the total cost of the goal (Step 2) by the number of months you have to save for it (Step 1). This will give you a sense of how much you need to save each month to meet each of your goals.

If you will be investing the money or saving it in a place like a high yield savings account (HYSA), you can adjust the amount by the interest you expect to earn. Not sure how to do that? You can use this savings calculator to figure out how much you need to save per month after adjusting for interest. Try entering in monthly savings amounts until you get the target total you’re looking for.

Not sure where you would save your money in the first place? Or what interest rates would be? Don’t worry, I’ll go into that below.

Add up the monthly savings targets you just calculated for each of your goal. That will indicate how much you need to save each month to meet all of your goals. If you find that you can’t save enough to meet all of your goals based on your desired timeline, use the steps below to decide which goals to prioritize.

4.       Do any of these goals reflect an immediate need?

By this I mean do you really and truly need it? For example, if your phone is currently totally functional, it just doesn’t take amazing pictures or the battery dies more slowly than it used to, that’s probably not an immediate need. However, if your phone is broken, dies super quickly, or is otherwise very dysfunctional then yeah, you probably need that phone. Let’s be honest, our modern lives do kind of depend on them.

Another consideration is whether you have an emergency fund. An emergency fund helps cover unexpected expenses like home repairs or car repairs, medical bills, and other surprise financial needs. If you don’t have an emergency fund, this should become your first savings goal. Ideally, you should have 3-6 months’ worth of expenses saved. If that seems intimidating, start with $500.

Even a small emergency fund can save your money and savings goals in the long run. Indeed, an emergency fund reduces the chance you’ll have to rely on credit cards or your savings for your big goals. An emergency fund may not sound sexy, but we’ll all need to pay for unexpected costs at some point!

5.       How would you rank these goals in terms of their long-term value and importance?

We humans are bad at valuing things that will happen in the future. You might have heard of the famous marshmallow study where children were given a marshmallow by a researcher. The researcher told the child they had to step out for a moment and if the child could resist eating the marshmallow until the researcher came back, the child would get 2 marshmallows. No surprise, most kids ate the marshmallow before the researcher came back a couple minutes later.

Adults are barely better at this than children. You can just take a look at our dismal average savings rates.

So it’s important to try and put yourself in the shoes of future you. For example, you might try to prioritize whether to save more for a house, wedding, or retirement.  You may find after this exercise that being able to retire at age 65 instead of 75 feels more important than a down payment on a house. Or maybe you realize that a fancy wedding isn’t worth as much to you as putting more money down on a house.

Alternatively, you might decide that a cherished memory of a wedding will benefit you a lot in the long-term. This step will likely take you awhile, but it helps to think through what you truly value vs. what you might feel pressured to value.

Valuing a savings goal less doesn’t mean you have to give up on it. It just means you’ll put it lower on the priority list in the following steps.

Combine Steps 4 and 5

Based on the answers to questions 4 and 5, you can decide to divert some of the money from the least important goal to either the necessary goal. Or, if there’s no necessary goal, the most important goal.

As you earn more money or reach your goals, you can then divert the extra money to any of the goals you downgraded above. Alternatively, you might find that you don’t care as much about those less important goals as you thought. If that’s the case, perhaps you continue to funnel more money to your more important goals and keep those less important ones on the back burner or even get rid of them altogether.

An Example

I’ll highlight how this works with an example. Let’s say I have the following savings goals: I’d like to save $20,000 for a wedding in 3 years, $50,000 for a down payment on a house I hope to buy in 5 years, and I want to max out my Roth IRA each year. That means I’d contribute $6,500 to my Roth IRA each year since I’m under 50. Consequently, I should save the following per month for each goal:

• Wedding: $20,000 / (12 months * 3) = $555.56 / month
• House: $50,000 / (12 months * 5) = $833.33 / month
• Roth IRA: $6,500 / 12 months = $541.67 / month

These calculations suggest I need to save $1,930.56 a month in total. Let’s say I don’t have that much money to save. Instead, I *only* have $1,700 a month to save. I know, $1,700 a month in savings is still a lot! In that case, I would decide that, for me, the most important long-term goal is retirement. For one thing, I don’t want to work past age 65. And for another, any dollar I invest now will be worth way more in the future thanks to investing and the power of compounding.

In contrast, the least important goal to me is a wedding. Given that, I might decide to save $325.56 a month for a wedding and wait longer to have that wedding, have a smaller wedding, or try to earn extra money I can contribute to the wedding.

You might make different decisions depending on your preferences and financial situation. However, this example hopefully illustrates how you can take some of the guesswork out of your savings goals.

Some Additional Considerations

In this example, I’ve decided to be conservative and omit any returns from interest rates. Because a wedding and a house are short term goals, I will not be saving that money in the stock market. You can see below for the rationale. And I don’t want to make an assumption about shifting interest rates in high yield savings accounts.

While I will invest my Roth IRA money, my goal is maxing out the contribution amount this year, not a particular earnings goal 33 years down the line. If, instead, my goal was to save $2 million for retirement, I would then assume a 7% yearly return (the average for the S&P500 after adjusting for inflation) and adjust my savings goals to account for that.

Additionally, I have pretended that I have $0 saved for these goals. If I had money saved, I would allocate that money based on what was most important to me. For example, I would put the most towards retirement to make sure I meet that goal, followed by a house, followed by a wedding.

I have also pretended I don’t have any high-interest debt and I do have an emergency fund. If you have high-interest debt and don’t have an emergency fund, then paying that down is your first priority, followed by building up your emergency savings.

Where to Save Your Money for Your Savings Goals

Short-Term Savings Goals

Short-term goals are those that are happening in less than 5 years. Medium-term goals are those that are happening within the next 5-7ish years.

Most financial experts recommend that you avoid investing your savings in the stock market if your goal is less than 5 years out. This is because stock market returns are somewhat unreliable in the short term. Instead, you should save your money in a location that earns safe and reliable returns. If your goal is imminent, you also want that money to be readily available to you (i.e. liquid).

The best places to save your money for short-term savings goals include: high-yield savings accounts (HYSAs), money market accounts, certificates of deposit (CDs), and treasury bills.

HYSA

An HYSA is a high interest savings account. It earns a high interest rate compared to a traditional savings or checking account. For example, as of this writing, most HYSAs are paying 4-5% in interest. This is compared to an average interest rate of 0.01% for traditional savings accounts. Plus, you can pull your money easily in and out of HYSAs. 

What’s the catch? Almost nothing! HYSAs are generally offered by online banks that don’t have the same costs as traditional banks. Thus, if you prefer in-person banking experiences, you might not love HYSAs. However, if you don’t mind doing your banking online, then you’ll love the convenience and returns of HYSAs.

The other downside of HYSAs is that the interest rates on HYSAs (and, indeed, all of these savings locations) are variable. Because the Federal Reserve has raised interest rates so much over the past year, interest rates on these kinds of accounts are also high. Once inflation goes down, the economy cools, and the Fed lowers interest rates, these accounts won’t return quite as much.

Money Market Funds

Money market funds also earn higher interest rates than traditional savings accounts. They are also quite liquid and generally very safe. So you can move money easily in and out of money market accounts and into your bank accounts. 

There are usually minimum requirements for how much you deposit. And you should always look for an FDIC-insured account to make sure you are protected from losing money.

CDs

CDs often offer higher interest rates than HYSAs or money market accounts. However, they come with a catch. They are time-bound deposits. Meaning that depending on the length of CD you choose, you have to leave your money in the CD for that length of time. Consequently, they are less liquid than the options mentioned above. That being said, you can get CDs that last anywhere from 1-month to 10 years. You therefore have a lot of flexibility in terms of how long you want to put your money away.

Keep in mind that, as with the other options, different banks will offer different interest rates on CDs. You may want to spend a little time comparing your options to choose a good fit for you. 

Government Bonds

Government Bonds are basically a way for individuals to loan money to the government to help fund government spending. Treasury Bonds (T-Bonds), I-Bonds, T-Bills, and T-Notes are considered very safe as they are backed by the U.S. government. They generally return far less than the stock market, but more than HYSAs or Money Market Accounts. There are also often few restrictions on getting your money. However, you must keep your money in I-Bonds for 1 years and if you withdraw before 5 years you lose 3 months of interest.

Long-Term Savings Goals

The best way of growing your money for longer term goals has traditionally been the stock market. The stock market is the only place to save or invest your money that has reliably beat inflation. It has even traditionally done better than real estate, while coming at a lower entry cost and being more liquid.

In the short-term, the stock market consistently goes up and down. This is why it’s important to keep your time frame in mind before investing. However, again, if your goal is 7 or even 5 years out, the stock market is often the best option.

But where should you invest your money? Many financial advisors recommend investing your money in index funds or ETFs that cover a diverse range of investments and that have traditionally had safe, reliable growth. For example, many financial experts consider investing in an ETF or index fund based on the S&P500 to be one of the best investment strategies you could take. Over the long-term, these funds have returned 7% a year after adjusting for inflation.

If you have a higher risk tolerance, you might consider an index fund or ETF with higher risk and higher potential reward. These often include funds based on emerging markets or small- and medium-sized businesses.

Mutual funds are also diversified investments. However, they tend to have higher fees and no better (or even worse) returns that index funds and ETFs. Consequently, financial experts do not recommend them much anymore.

How to Keep Yourself On Track

Hopefully at this point you’ve prioritized your savings goals and figured out where to save your money. Now how do you keep yourself on track to meet your goals? Once you’ve started intentionally investing, it’s a good idea to set up automatic transfers to your savings account and automatic investing to your investment accounts.

Setting up automatic transfers is an easy way of keeping yourself accountable. You can set up transfers at whatever frequency and amount works for you. Simply set up an automatic transfer from your checking account to an HYSA or other savings product for your short-term goals. And set up an automatic transfer from your checking account to an investment brokerage account for your long-term goals. You’ll then know you’re meeting your goals with no thought on your part.

Another advantage of using an automatic deposit system is that it’s a great way of seeing how much you have for spending after your savings goals are met. This takes the hard work out of keeping track of your spending in order to determine whether you can meet your goals.

Additionally, I recommend setting up envelopes for your savings goals. Many financial institutions let you set up savings buckets within an account so that you can divert money to particular savings goals. For example, you might have an envelope for a wedding and an envelope for a down payment on a house. You could then divert 20% of your savings to the wedding envelope and 80% of your savings to a house envelope.

Envelopes are useful tools for getting you excited about your goals, seeing whether you’re on track, and making sure your savings go to what you intend them for. Plus, they’re easy to set up and don’t require separate savings accounts.

To Sum Up

That was a lot to go over. What are our take-home points? First, to create a savings plan for multiple financial objectives, make sure you timeline out your goals and figure out how much you would need to save each month to meet your goals. If you don’t have enough to save for all your goals, assess the necessity and long-term value of each of your different savings goals. This will help you determine which goals to divert more of your hard-earned savings towards, and which you might need to compromise on a little.

Moreover, your savings strategy includes where you save your money. For short- and medium-term goals, you’ll want to save your money in places that offer safe and consistent returns. These include HYSAs, money market accounts, CDs, and treasury bills. For long-term goals, the stock market offers the best returns.

Finally, it’s one thing to make financial decisions, it’s another thing to follow through with them, especially when unexpected life events crop up that might derail our goals. Adulting comes with a lot of unexpecteds. Having an emergency fund is pivotal for keeping you on track for all those adulting goals. Additionally, setting up automatic savings and automatic investing will keep you accountable. Creating envelopes for your savings goals can further help you get excited about your goals and assess how close you are to achieving them.

Have any questions about prioritizing savings goals? Let me know in the comments. If you liked this post, please consider liking, subscribing, or sharing with others. It’s always a huge help!

Interested in related content? Check out my posts on investing for retirement, creating a perfect budget, and money-saving tips.

Finally, remember that I am not a financial advisor. This information is shared for entertainment and informational purposes. Before making any financial decisions, consult with a professional.