How to Rank Your Financial Priorities

A piggy bank with a bull's-eye and arrows sticking out of it.

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published 14 October 2024

When it comes to financial planning there are so many ways to attack it. Additionally, I find one of the hardest things for people to do is to prioritize their needs. Oftentimes, individuals conflate importance with immediacy, as in the sooner something is approaching, the more important it must be. Although I certainly understand this mindset, I don’t believe it is the appropriate way to handle one’s finances.

I’d like to take a stab at listing in order of priority how, I believe, we should be looking at our finances. Naturally, it is not one-size-fits-all and, of course, I, nor anyone else, can tell you what is most important to you.

1. Protect yourself and your family

To me, the biggest and most important thing you should focus on first is protecting yourself and your family from a tragedy that could derail everything. This usually means making sure you have appropriate insurance coverage. Let’s face it — you can always work longer and make more money, but only if you are physically able.

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All too often, I see individuals who are in a terrible bind because they didn’t have a contingency plan with proper insurance. Life, disability, long-term care, health, property and casualty — these are the basics of a good foundation to build off of. Without proper insurance, you are building a financial plan on a house of cards.

2. Get rid of destructive debt

Next on my list is bad debt, like credit cards. I want to make a clear distinction — I am not referring to mortgages or car loans. Rather, I’m referring to those credit card debts with high interest rates. These can simply crumble a family financially and need to be addressed.

You need to have a well-thought-out plan to eliminate high-interest debt, and it is equally important to ensure that you don’t end up back in this hard-to-recover-from place.

I rank this as a top priority because people can be stuck with high credit card debt for years, especially if they make only the minimum payments.

3. Save for emergencies

Simply put, you should have three to six months of expenses saved in an emergency fund that’s easily accessible. Many times, people end up with high-interest credit card debt simply because one unexpected expense broke their finances. Having a nest egg or slush fund to insulate you from that situation is highly important.

4. Save for retirement

Finally, something fun to talk about, right? There is an epidemic in our country, and that is that most people don’t have enough savings, or aren’t saving enough, to ensure they can afford a comfortable retirement.

You cannot borrow for retirement, and at some point, you might be forced to retire. The last thing you want is to be staring down a 30-year retirement but unable to afford the lifestyle you’re accustomed to.

Additionally, the sooner you start saving and the more effort you make in this area, the better your options will be to live the retirement of your dreams.

5. Focus on other savings goals

Now that emergency and retirement savings are on target, you can focus on other savings priorities, whether they be college for your children, a second home or a big project. These items aren’t critical to your financial plan, and there are generally other means to achieve these goals, such as borrowing for college.

I am not suggesting these shouldn’t be important to you now, as they may seem more important to you than how comfortable your far-off retirement will be. But everyone will need to retire, yet everyone won’t need a secondary home.

6. Consider paying off constructive debt

It is probably a tie for me on the next, and last, two categories. I’ll give a slight edge to paying off constructive debt, like a mortgage or car loan. If you have a low mortgage rate, though, I see very little benefit to aggressively paying off a home, except for the peace-of-mind factor. After all, if you are mortgage-free, you’ll have fewer fixed expenses heading into the next stage of your life, which can leave you feeling mentally clearer and more able to continue making good financial choices.

7. Give to charity

It might seem messed up to have charitable giving as the least important piece of your financial plan. Certainly, a great argument can be made that it is the most important, and I even have clients who prioritize this over almost anything else. I get it and actually highly admire those people.

That said, if I am looking out for my client’s finances first and foremost, like I’m supposed to, and the things above aren’t in a good spot, giving money away seems, well, conflicting at best.

Let the debates begin, but I’m sticking to my story that this is what I feel works best for most people. There are exceptions to every rule, and people can always shuffle this deck to their own circumstances. This is just my opinion on what I’ve seen work best in my 20-plus career.

Hope you enjoyed it, and stay wealthy, healthy, and happy.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In March 2010, Andrew Rosen joined Diversified, bringing with him nine years of financial industry experience. As a financial planner, Andrew forges lifelong relationships with clients, coaching them through all stages of life. He has obtained his Series 6, 7 and 63, along with property/casualty and health/life insurance licenses. Andrew consistently delivers high-level, concierge service to all clients.