One of the most challenging aspects of creating a financial plan is balancing available resources (a.k.a. your money) with financial goals (a.k.a. your dreams).

Some of these conflicting priorities include:

• Saving for retirement vs. saving for college
• Spending money now vs. saving for the future
• Paying down debt vs. investing
• Investing in retirement accounts vs. brokerage accounts
• Building up an emergency fund vs. paying off debt

The answer to every one of these dilemmas is: it depends. As much as we never like “it depends” as a response to a question, it generally signifies that we must dig deeper into the situation before making decisions.

So, what does it depend on?

Each of us has a unique mix of values, risk tolerance, preferences, and lifestyles that directly impact how we earn, save, and spend money. That’s what puts the personal in personal finance. There is no single “best” solution or “best” way to achieve financial goals; the optimal solution is one that takes into consideration your unique circumstances (and that has as much to do with your personality as it does your money!).

What if You’re Not Even Sure What Your Financial Goals Are?

To prioritize your financial goals, you first need to be really clear on what is important to you and why it’s a priority.

Often, we pursue certain things (especially material things) simply because that’s what we see others in our peer group doing. In our society, the default is to move further and further up in your career and buy a bigger home, a faster car, and the latest technology (I know I definitely experienced this!).

This is often called the hedonic treadmill because you can run this “race” indefinitely. Unlike running an outdoor race with a clear finish line, those on the hedonic treadmill are up against a moving target; they consistently need more and more to feel happy and successful.

What’s the solution?

Clear, specific, actionable goals help you define your target (a.k.a. finish line) and escape the endless race for “more” (a race in which no one wins because there is no finish line).

The following questions can help you clarify your financial goals:

• How can money substantially improve your life in the near future? (ex. spending money on travel to visit family, hiring a cleaning service, etc.)?
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• What are important experiences that, if you don’t prioritize now, you’ll lose the opportunity to do in the future? (ex. traveling with your kids, attending their sporting events, etc.)
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• What is causing you the most stress regarding cash flow (ex. credit card debt, needing to earn more income to meet expenses, overspending on nonessential items, etc.)?
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• What one financial improvement would help you feel less stressed? (ex. knowing you are on track for retirement in 10 years, investing more conservatively in your portfolio while still growing your money, etc.)?
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• What do you imagine for yourself 5, 10, 20, 30, and 50 years in the future? What do you need to do today to reach that ideal future self (ex. visualize yourself at life transition stages such as becoming an empty nester, retiring from full-time employment, etc.)?

There are no right or wrong answers, but a few basic, nearly universal goals include:

• pay down high-interest debt
• build an emergency fund
• save & invest for a comfortable retirement

The vast number of (all important!) goals simultaneously competing for our attention explains why we can get easily overwhelmed and not know where to start.

Let’s examine ways to ensure that we effectively prioritize our goals using the “good, better, best” philosophy.

GOOD: Use Personal Finance Rules of Thumb

The complexity of personal finance, including the vast number of things we’re “supposed” to be doing at any given time, is the reason there are so many simple rules of thumb, such as:

• Save at least 10% of your income for retirement
• Use a 50/30/20 budget (needs/wants/saving)
• You’ll need to replace 75% of your pre-retirement income in retirement
• If you withdraw 4% of your savings annually, your money will last throughout retirement
• Take 100 minus your age to get your stock allocation percentage
• Save 3 months in an emergency fund

There’s nothing inherently wrong with following these guidelines. Indeed, you’ll be significantly better off than most of the population if you stick to these basic rules.

However, blindly following them is unlikely to instill full confidence that you’re meeting your own personal finance goals. You’ll also miss out on opportunities to fully optimize your path to reaching those goals.

When it comes down to it, goals that have this much of an impact on your everyday life and future well-being are simply too important not to invest time and energy.

BETTER: Use a Financial-Checklist Approach

A more structured method of prioritizing financial goals involves following a checklist-type approach.  With this, you follow a set blueprint that guides you through each step in your financial journey.

The most famous of these is, of course, Dave Ramsey’s 7 Baby Steps:

While I’m not a fan of Dave Ramsey, I recognize that this simple, straightforward approach has helped an incredible number of people improve their lives by getting and staying out of debt.

Money Guy has a similar approach, which he refers to as the Financial Order of Operations. His approach is a little less rigid and prioritizes employer matching of retirement accounts earlier in the process, something controversial in the Baby Steps.

If you’re following these steps, you’re probably doing pretty well. But you still might have some questions that don’t quite allow you to feel fully confident that you’re optimizing your situation as much as possible:

• Am I supposed to save based on gross or net income?
• How do I decide if I need 3 or 6 months (or more) in an emergency fund?
• What if I’m in a high tax bracket? Should I follow the advice to contribute to a Roth, or would a pre-tax account be better for me?
• What about missing out on years of compounding investments if it takes me a long time to pay off my debt first?
• What if I already have a significant amount in savings? Do I still need to contribute 10, 20, or 25% to savings?

There is absolutely one vitally important question you’ll still have for sure:

“How will I know when it’s ‘enough‘?”

Even if you choose to follow one of these checklist-based approaches (and I incorporate many of these into my own plan!), you still need to adapt it to ensure that your other financial goals, values, and risk preferences are considered.

BEST: Follow a Personalized, Detailed Financial Plan

Those who are able and willing to learn in-depth about the personal finance topics that apply to them (or who choose to hire a real financial advisor with training and experience in these topics) will find the best results in optimizing their financial goals.

Completing an in-depth approach like this requires acquiring knowledge and understanding of financial topics, applying that knowledge with calculations and analysis, and then stepping back from the “best” quantitative solution to adapt it to the qualitative aspects of your life.

Acquire Knowledge: Learn!

Acquiring a base of knowledge in personal finance topics applicable to you requires things like:

• Understanding the importance of cash flow as the basis for your financial plan
• Studying the basics of investing, including diversification, asset allocation, and ongoing asset management
• Learning how income taxes work and the tax implications of certain decisions
• Understanding the difference between Roth and Traditional retirement accounts
• Calculating retirement needs and projections

There are so many great books and online resources to help you learn!

Apply Knowledge: Deep-Dive into the Spreadsheets

It’s important to fully analyze how you can optimize all aspects of your financial life to reach your financial goals. This generally involves running various calculations and multiple scenarios to arrive at a solution that maximizes your cash flow and investments.

I’ve always been a detail-oriented person. I like to build complex spreadsheets and find the absolute “optimal” solution. Numbers and spreadsheets have always been my BFFs.

However, it’s a mistake to assume that the “magic number” that signifies the financially optimal solution is the final result that you should work toward. After all, maximizing life is a bigger priority than optimizing money.

Adjust Knowledge: And Now, Step Away from the Spreadsheets

Here’s the point where you have to step away from the details, numbers, and, yes, the spreadsheets.

The financially “optimal” solution is rarely the best solution because life isn’t strictly about money, and humans aren’t robots. We don’t always do the logical, rational thing, partly because we are emotional and also because there are far more important things than optimizing for financial success (Dollars and Sense is a fantastic book about why we’re irrational regarding money).

Examples of this include:

• Paying off your low interest-rate mortgage even though it’s not the “best” solution because it will help you sleep at night
• Pursuing options to step away from your current career trajectory (and make less money) to spend more time with your family
• Slowing down in your business so that you can take care of your health and well-being
• Keeping excess cash in savings, even though you may potentially miss out on investment returns
• Opting for convenience instead of saving money
• Investing in experiences, even if it requires longer to reach some of your long-term goals

The financially optimal plan always needs to be adjusted (sometimes significantly) to accommodate more important life values and priorities. Money is simply a tool to help you reach your goals; it’s not the goal in and of itself.

These are not derailments from your financial plan; these ARE your financial plan.

Final Thoughts

One of the most important things to note about financial goals is the need to be flexible.

First, embrace uncertainty. We have no idea what will happen in the future. The markets fluctuate wildly. Employment is not guaranteed. We may face unexpected medical issues, family breakups, or something else totally unexpected. It may take longer to reach your goals, or you may have to adjust them, but that’s okay.

Second, goals will change. Simply think about what your goals were 10 years ago. Would you still want those same things today? Probably not. Most often, it’s the upward trajectory and the journey itself that yield the biggest benefits of striving to reach your goals.

Ultimately, whether you follow a “good,” “better,” or “best” way to prioritize and set your financial goals, remember this: first, be intentional and clear about what you really want in life and then determine how money can help you get there. Align these two things, and achieving your goals is inevitable.