There doesn't seem to be enough money...

Set flexible financial priorities
By George Mannes, Money Magazine — 07/26/10

You know what your financial priorities are supposed to be:

• Max out retirement savings.
• Build a cash cushion for emergencies.
• Get rid of any credit card debt.
• Save for your kids' college education.
• Pay off the mortgage before you retire.

Problem is, for most of us there doesn't seem to be enough money to fully fund all those purposes and put dinner on the table.

Complicating matters are the legitimate demands of everyday existence -- your kid needs a computer, your parents need help with bills, your car needs tires -- as well as your aspirations. In light of all the pressures on your money, it's understandable that you can't always follow the standard advice to the letter.

Balancing reality against the conventional wisdom requires tough choices and compromises, as well as insight into the forces that deter you from hitting your marks. Follow the steps laid out here to set high but achievable goals while giving yourself flexibility to handle the intrusions known as real life.

The starting point for addressing infinite desires with finite funds is knowing what advice you really can't ignore.

Marjorie Fox, a Reston, Va., financial adviser, tells her clients there are three non-negotiables:

• Contribute enough to a 401(k) to get the employer match (typically a quick 50% to 100% return on your money, depending on your company's plan)
• Accelerate pay-down on credit card debt so that high finance charges don't drain your resources
• Work on building adequate emergency savings.

Granted, putting only up to the match in your 401(k) won't get you to Easy Street at age 65. But this bare minimum approach ensures that you will always be saving for retirement -- your most costly goal -- no matter what other forces are at play for your money.

It's no small task ordering the rest of life's priorities. But start by writing down everything you want that requires money you don't have -- anything from retiring at 60 to taking a two-week European vacation.

Next step: Pare it down. Pittsburgh financial planner Kathryn Nusbaum advises pursuing no more than five financial goals at one time; as she says, "once you go beyond that, it's too much to get your head around."

Set your financial priorities. Simply ask yourself which of them you'll regret the most if they don't get completed.

Once you've trimmed your list, decide the amount you'll stash each month. Jill Gianola, a financial planner in Columbus, suggests structuring your savings plan in increments of three to five years. "It isn't instant gratification, but it's see-able," she says. So instead of intimidating yourself with the big number you'll need for retirement, you might aim to have added, say, $50,000 between now and 2015.

Put those savings on autopilot: Have the money automatically transferred each month from checking to dedicated accounts. That way, inertia works in your favor -- you'll have to take action to undo your plan.

No matter how well laid your plans are, you can be sure life will intervene -- probably in the form of family members. You may have imagined a world in which once your kids graduated from college, you were off the hook financially.

And until the day arises when your folks need help, you probably won't have listed "providing parental aid" as one of your long-term goals. But, in fact, nearly a third of affluent older boomers are assisting both their children and aging parents financially, according to the Merrill Lynch Affluent Insights survey. That's not to say that it's always other people who screw up the priorities: Sometimes your own circumstances or desires change.

So what's the solution when something arises that calls your priorities into question? It's to remember that your plan, however firmly set, is also organic. Though you have up to three goals that are non-negotiable, the others are meant to be flexible to the intrusions of real life.

Okay, but what if these exercises make you realize that you can't afford to pay for a home health aide to take care of Dad without doing serious damage to your own retirement plans? Rather than letting guilt subsume you, think about whether you can "massage your goal, and fulfill your need in a more creative way," suggests Nusbaum.

Is there another way to get to the same end result? If the goal is to get Dad the care he needs, you might look into whether he's eligible for government programs that would defray the costs; you might ask siblings to share the burden with you; or you might help him arrange a reverse mortgage.

Alternately, is there another solution that won't cost as much? Return to the story behind whatever it is you want to spend money on, and see if there's a different way to satisfy your motivation. You may also find that a halfway measure will do.