Align your life goals with your financial goals

If you're like most people, you probably have some large life goals you'd like to accomplish during your lifetime. Unless you plan to win the lottery or you're lucky enough to have an inheritance coming your way, chances are good that your life goals will require large financial reserves. This means you're better off planning upfront how to save your money for your targeted goals. In order to plan appropriately, it's best to prioritize your life goals in the order you want to achieve them. Here are a few tips on how to do that.

Start by clarifying your financial goals

If you've taken the time to think about your financial goals, you're on the right track. But thinking about them only gets you so far. The next most important step you can take is to write them down. Putting your financial goals on paper is one of the best ways to make sure you accomplish them because you have something tangible to remind you of your plans and to keep you focused.

When listing your financial goals, it's important to rank them in order of importance. If you try to tackle all of them at once you risk becoming overwhelmed. On top of that, chances are that each goal will require significant financial reserves. This makes it that much more important to clarify when you want to accomplish each one, making it easier to plan your life goals accordingly.

The most common financial goals

' Home ownership. Owning a home is widely considered the American dream. Not only does it save you from having to deal with landlords, it gives you freedom to decorate and change your house in the way you see fit. In addition, real estate is almost always a sound investment.

• College education. If you have children, you probably want to give them the best shot you can at a successful life. Sending your kids to college gets them started in the right direction.
• Business ownership. Many people are tantalized by the idea of being their own boss. When you own your own business, you get to make your own hours and work when you choose. You also get to work in a field of your choosing.
• Ability to vacation. Lots of folks would like the freedom to travel where they choose without having to worry about the cost.
• Retirement. Nobody wants to work a day job until they're old and gray (unless they absolutely love what they do). Most would like to pursue other interests and not be at the beck and call of an employer.

To achieve each goal listed above, you need sizeable stores of money. Luckily, you probably don't need to achieve them all at one time. This is fortunate, because each goal requires an unique savings plan tailored to its own specifics. Like a garden, you have to nourish these life goals throughout the growing season, giving each one the appropriate amount of care and attention.

Prioritizing your financial goals

Once you know your financial goals and you've listed them on paper, the next step is determining how to allocate your savings. Many people often wonder which goal to tackle first, or whether they should put money toward all their goals at once.

Though there is no single answer, an excellent strategy to help get you going is to rank your financial goals in order of the greatest after-tax return on investment (ROI) each one offers. When you start by working toward the goal with the highest ROI, you will maximize the money you can access to work toward your other life goals.

To begin, you want to allocate your money toward the goal with the greatest net financial impact. This is determined by calculating the after-tax return on investment for each goal. For example, buying a house gets you significant mortgage deductions.

Ways to get you there faster

Make extra payments. If you have a loan that doesn't have a prepayment penalty, it's always a good idea to make extra payments. Look at it as a tax-free return on investment, equal to the loan's interest rate.

Pay off debts with higher interest rates first. It is always a good idea to be informed of the interest rates on your credit cards and loans. Keep accurate records and concentrate on paying down the balances with the highest rates, then move on to those with lower rates.

Use matching programs. If your employer matches the contributions you make to your retirement account, contribute up to the limit of the matching offer.

Weigh your tax advantages. There are more tax advantages associated with a Section 529 college savings plan than there are for an IRA or a 401(k). When you add to a 529 plan, contributions earn money on a tax-deferred basis and are tax exempt when used for higher education costs.

Sticking to the plan

When it comes down to it, you can achieve all your large-scale financial goals. The trick is making a plan and sticking to it. The first step is documenting your life goals and prioritizing the order in which you want to achieve them. After that, it takes determination and persistence, but if you remain persistent to it you will undoubtedly be successful in the end.