see saw“One of the most difficult parts of deciding how to spend and save your money is prioritizing. Most people have many important financial goals including paying off debt, saving for retirement, buying a home and saving for a college education for your children. And you probably can’t afford to work heavily on all of these financial needs at once,” writes Abby Hayes in a superb piece headlined How to Balance Retirement Saving With Other Financial Goals.”So how should competing goals line up in your financial life? Your top financial priority is often a somewhat personal decision. If you manage your money well, you may be able to make progress on all these goals, or at least most of them, at the same time. But there are some rules of thumb to consider when choosing between competing financial goals.” Her article continues:

“Make employer matches a priority. If you’re currently in a job where your company provides an employer match, take full advantage of it. This means that if your employer will match up to 5 percent of your salary, make an effort to put at least 5 percent of your paychecks into your 401(k). This may seem like a stretch, and could mean easing up on other financial goals. But if you miss the match, you are essentially passing up part of your compensation, and no one wants to give up free money.

“However, if you are certain that you will only stay at your current job for a short time and will be leaving before you are vested in your 401(k) plan, the employer match is less of a sure thing. Take a look at your employer’s vesting schedule to see how long you need to stay at the company before you can keep the 401(k) match. Once you are vested you can take your employer’s portion of the contributions with you when you leave a job. Some companies provide immediate vesting, while others require several years of employment.

“If you aren’t sure how long you will stay at a job, it’s best to take advantage of the employer match. Even if you leave your job before you’re vested, you still get to keep what you personally saved and enjoy the tax-deferred investment growth of saving in a retirement account.

“Prioritize high interest debt. When it comes to paying down debt, it’s important to remember that not all debt is created equal. If you have credit card balances charging you a 19 percent annual percentage rate, that’s a much bigger priority than a mortgage with a 3.75 percent interest rate. In general, you should work hard to quickly pay down any high interest debt. Every month you pay that massive interest, you’re throwing money down the drain.

“While paying down high interest debt, you may want to save only the minimum for retirement. This means saving enough to get your employer match, but not putting anything else into your retirement accounts for the time being. Work toward getting those credit cards and other high interest debts paid down first.

“Balance other debt. While lower interest debt is less pressing to pay off, it’s still important. When you’re deciding whether to save or pay off debt, such as student loans, it’s important to look at the interest rate and compare it to the rate of return you expect to earn on your investments. If you’re getting a healthy return on your retirement investments, you may be better off saving for retirement while making minimum payments on your other low interest debts.

“Buying a home. Whether you should save to buy a home or continue renting and save more for retirement depends on a variety of factors. Don’t pass up an employer match, even to save for a down payment on your home. But after getting the match, the decision becomes trickier.

“You can’t always count on a home to gain value over time, but in the long run a home will generally protect the investment that you put into it. However, homeownership is important for other reasons, too, especially if renting is more expensive than owning in your area. Estimate how long you would like to live in an area, and then compare the cost of renting to your expected mortgage payments and other homeownership costs. Look at the math and use common sense to decide whether to pursue both goals simultaneously or to slow down on retirement savings to save for a home.

“Saving for college. As a parent, it can be difficult to put yourself first. But when it comes to retirement, this is exactly what you need to do. Your kids can work through college or take out loans. You cannot do the same for retirement. So while saving for your kids’ college education is important and you should start as early as you can, don’t do so at the expense of your retirement savings.

“You don’t necessarily need to be maxing out your 401(k) contributions annually before you put money into a college account for your child. But a good rule of thumb is you should be devoting at least 10 percent of your annual income to retirement savings before you start putting money into college savings.

“Not everyone will choose to balance their financial priorities in the same way. Ultimately, deciding between competing financial priorities is about doing the math for yourself, examining your own long-term goals and making the decision that best fits your needs.”