What are your top two or three financial objectives?
Most people, when asked that question, fall back on platitudes--things like achieving financial security, sending children to college or securing a comfortable retirement. Or, they voice fantasies that probably can't be achieved at all--like doubling their income overnight, retiring at 40 or winning at Powerball.

The fact is, most of us have never spent much time thinking in a systematic way about which financial objectives matter most. Instead, we muddle through our financial lives, occasionally setting aside money for important long-term needs--like savings, investments or insurance--but more often just spending to meet the day-to-day expenses that always clamor for attention. There's nothing terribly wrong with that approach--except that it risks leaving the most important objectives unfulfilled.

That's what this opening section of Money 101 is all about: helping you to choose which financial goals matter most so that you can make sure they happen.

That's not as easy as it sounds, since financial goals--even worthwhile ones--continually collide with one another. Paying for a child's braces may rob money that would otherwise go into his or her college fund, for example. And saving effectively for college often wipes out any hope of putting adequate money aside for retirement--to say nothing of bills that you or a spouse could face to help care for an aging relative. Choosing among important expenditures like these can be truly agonizing.

That's why to get what you want most you must 1) decide which goals will take precedence, and 2) work toward the lesser goals only after the really important ones are well provided for.

Fortunately, you have at least one ally in meeting your long-range goals: time. That's an advantage, of course, because of the power of compounding--the fact that small amounts of money, properly invested over long periods of time, can grow into a significant sum. To take a trivial example, suppose you put aside only the cost of a single candy bar--about 65 cents--each day. Invested in a tax-deferred account paying 5 percent a year, that string of savings would grow to $3,079 in just 10 years and to $16,521 in 30 years. For other examples of the way that money can grow over time, try money.com's savings calculator.

To put the power of compounding on your side, though, you have to start early--and if that seems simple-minded, consider this surprising example. Suppose there are two siblings, a sister and a brother, who both invest in Individual Retirement Accounts earning a conservative 8 percent a year. The sister starts saving at age 20, and for the next 10 years she stuffs the maximum $2,000 a year into her IRA. At age 30, though, she stops altogether and never adds another penny to the account. Her brother waits until age 30 to get started, but then he dutifully salts away $2,000 a year for the rest of his life. Which sibling do you think will be better off at retirement age: the one who saved for only 10 years or the one who started later but saved continuously? In this case, the early bird will always be ahead. She'll reach age 65 with over $428,000 in her IRA account, while her brother will have a little under $345,000--about 20% less.

Of course, if both siblings had been prescient enough to start saving at age 20 and keep it up all their lives, they'd both have an even larger sum--nearly three-quarters of a million dollars ($773,000), before taxes. Enough said about the power of disciplined saving and investing.

The point is that to put time on your side, you need to decide early which of the many possible financial goals are really worth pursuing--and start working toward them.

To get started, make a list of all the things that you'd need to feel secure, happy or fulfilled. These can range from the weighty (getting out of debt) to the luxurious (a Lamborghini, say, or a cruise to Bali). You don't need to prioritize them yet. That comes later. But you should try to get down all of the money-related things that will really get your motor started. And if you have a spouse or significant other, it's a good idea to do this exercise together--assuming you think your relationship can survive it! Here are some of the less frivolous items that you may want to include among the possibilities:

• Accumulating enough savings to handle an emergency
• Buying a house large enough to accommodate you comfortably
• Getting out of debt--and staying out
• Ensuring that your parents are comfortable and well taken care of in their old age
• Paying for your children's college education
• Investing with the aim of becoming financially independent
• Amassing enough wealth to retire comfortably

Once you have your list in hand, push on to the next section where you'll determine which of these goals are most important to you.

Next: Prioritizing