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One of the relatively less-discussed topics on personal finance is how to prioritize savings goals. In management colleges and the corporate world. an often discussed term is setting SMART goals .

Specific, Measurable, Attainable, Relevant and Time-bound. Our savings goals also need to follow the SMART criteria.  Ask yourself honestly how many of you have savings goals set? Honestly, I didnt, and only recently thought about it.

As I often mention, blogging is one of the ways I hope to have better control of my own finances. I decided to write an article on setting investment goals while actually setting my own goals in the process.

At any point, we have many financial goals to achieve: paying off debt, saving for retirement, saving for rental properties for Passive income. saving for our childs education, buying home, buying a car in next 5 years, taking a dream vacation in Europe, and probably a thousand more.

I assume that you havent achieved many of the above goals yet. so the article might actually help you more than what I intended while writing. We are a single income household, and were renting while saving for the down payment towards our new home .

As I am saving for various goals at the same time and, until recently, I had no clue how to prioritize one goal above the other. After hours of research I now realized that theres no right or wrong way of prioritizing, as long as youre saving according to your plan and saving enough.

Priority 1 Emergency Savings

This is what is my first take; emergency fund is the first one you should aim for . Dont save a cent for something else, or pay down any other debt, until you have at least $1000 saved for emergencies.

Following that, you should build up 3-6 months of expenses toward emergencies while doing everything else like debt repayment, etc. The ideal size of an emergency fund  is debatable.

Regardless of your financial situation, this has to be the highest priority in your savings goals.

Priority 2 Long Term Goals

Only  retirement savings qualify as long-term saving goal. I believe  you should consider saving for retirement your next priority. Choose a contribution amount and save every paycheck without fail. One good way is to straightaway set aside 15% of your income into a 401(k), IRA, or Roth IRA account via automatic deduction from your checking account.

With the Social Security fund situation. if you havent reached forties yet, you are unlikely to receive the payout our parents or grandparents receive (or once received). We have to bear most of the burden for living expenses in our retirement ourselves.

If you dont make retirement savings your number 2 priority, youll be left with three options: retire late, lead a lifestyle of poverty, or work even in very old age.

Per Fidelity:

However, personal priorities are important and could trump retirement savings, but we believe you should consider contributing at least enough to your workplace savings plan to maximize any match. It is important to understand the impact this has to your retirement goals and begin additional retirement savings as soon as possible.

Priority 3 Medium Term Goals

For me, this includes buying a home, a new car, traveling around the world, and building a college education fund for my children. Prioritize within the category and focus on one goal at a time.

If you have debt, than debt repayment should take priority in the list of medium term goals. Dave Ramseys debt snowball is something you can look into for debt payment strategy assistance.

Start repaying debt only when you have built a sufficient emergency fund and are depositing money regularly into retirement savings. Depending on the rate of interest your debt incurs, you can give debt repayment a priority over saving for long-term goals.

A repayment of credit card loan that charges 10% interest should always be a first priority among medium term goals compared to earning 3% interest in saving bond or funds which you set aside for your mortgage or car payment.

Priority 4 Short Term Goals

I do have a few short-term goals but they are my last priority. Since my longer term and medium term goals are not yet achieved, I dont want to derail them by putting savings aside for short-term goals. Car maintenance, home improvement, or setting up a home theater are examples of short-term goals.

I am setting up a fund for opportunity costs, which could include childbirth/adoption, helping a close family member in need, taking a training course, etc. The latest use of the fund was to buy a new laptop computer.

Priority 5 Building Wealth

For the rich, this is the topmost priority. You know why? Because theyve already met the rest of the goals. You can put additional money aside to invest in a business venture or in the stock market.

It is one thing to set up goals, and another to stick to the plan. If you arent disciplined, your priorities could be a victim of your own impulses.

We need to master the ability to delay gratification . which means resisting short-term pleasures in favor of long-term happiness. If you can’t save for short-term goals, you won’t be able to keep money aside for more important long or medium term goals.

What are your saving goals and how far you are readers?