In future Money 101 lessons, we'll deal in detail with drawing up a budget and achieving a number of important financial goals. But assuming that the earlier parts of this lesson have helped focus your attention on your main priorities, here are examples of plans you might draw up to meet three of the most common objectives: getting out of debt, paying for college, or financing a retirement:

Getting out of debt
If you struggle to meet credit-card payments every month, then face it: You probably need to shed or consolidate some of that debt. For example, suppose you owe $3,000 in outstanding credit-card debt at a 16 percent interest rate and a $10,000 car loan at 9 percent. To pay off both these obligations in a year, you'd need to pony up $1,150 a month. But if you are a home owner with equity in your property, you could borrow $13,000 on a home-equity loan at the same 9% and retire those other bills. Then your cost to pay off the home-equity loan in a year would be lower--$1,140 a month--because you're no longer paying high credit-card rates of interest. Moreover, because you can deduct the interest on most home equity loans, you'd reduce your taxable income by $680 that year--a $210 saving for someone in the 31 percent federal tax bracket. In effect, the government would help you pay off your nagging expenses.

Of course, this kind of strategy works only if you stop putting new charges on your credit cards at the same time. This principle seems obvious, but it's where most people fall down.

Paying for college
Tuition, room and board at a private college costs around $30,000 a year today, and that bill is projected to reach $78,000 (based on projections by T. Rowe Price) by the time this year's crop of newborns are entering college 18 years hence. Your children may qualify for financial aid either in the form of a scholarship or a loan, and many students work their way through college. But if you want to spare your kids the burden of graduating in debt, most states offer education savings accounts in which after-tax contributions grow tax-deferred until they're used to pay college tuition--when the withdrawals are taxed at the child's minimal rate, rather than at the parent's rate. You could also open a federal Education IRA that lets you put $500 a year, after taxes, into a bank account or other investments; earnings on that type of account are totally tax-free, provided the money is used for tuition when it's withdrawn.

Neither of these plans, however, covers all of the typical cost of an education. For example, if you started putting $500 a year today into an Education IRA earning 8%, after 18 years you'd have only $20,723.13--about one-tenth of what a top-price four-year undergraduate degree is projected to cost. To meet the rest of the costs, you can supplement your investments with mutual funds, stocks or bonds--especially zero-coupon bonds that don't make interest payments but that cost substantially less than they pay at maturity. For example, a $10,000 zero-coupon bond that matures in 18 years issued by a U.S. corporation recently cost around $3,350. Best of all, you can buy bonds that will mature in years when a child's tuition payments will be due.

If you keep in mind that being able to pay your newborn's college costs is more important to you than, say, driving a luxury car, then stick with a family car instead. Let your priorities direct your discretionary spending.

Financing a retirement
A popular rule of thumb claims that retirees need only 70% of their pre-retirement income to maintain their lifestyle, since they no longer have to pay for commuting or for work clothes.

In fact, however, other costs go up in retirement, such as utility bills when you're home all day, the price of hobbies and other diversions--and, of course, the cost of health care as you age. Some retirees find they need as much income in retirement as they spent while working.

Unfortunately, traditional pensions pay only a fraction of your salary, and Social Security won't make up the difference. In addition, the younger you are, the less certain you can be about how much money you'll receive at age 65 from any of the retirement plans you have today. Why? Because Social Security benefits may be revised--and employers are free at any time to change their pension-plan formulas. (They can't do so retroactively--every retirement dollar that you've already qualified for is yours to keep. But employers may legally alter the calculations they use to determine the retirement benefits a worker's salary will earn in the future.) And of course, Congress can change the laws governing retirement savings plans at any time.

So to make your retirement finances secure, you need to contribute to as many different plans as possible. If you have a 401(k), 403(b) or 457 program at work, put in as much money as you can. Most employers will match your contributions, giving you money for retirement that you won't get any other way. If you have no retirement plan at work, contribute to an IRA. Note that contributions to all of these plans are tax deferred, so that you, Uncle Sam and your boss together could be adding to your retirement stash.

Then to insure against possible new retirement-plan rules mandated by Congress, you need to have your own taxable savings plan as well-- ideally invested in stocks, bonds or mutual funds which generally return more than bank accounts. Best of all, as your investing account grows, it can help you finance other goals as well.

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