Everyone has goals, but lines often get blurry between what deserves savings and what doesn't. Obviously people should save for retirement, but where do you draw the line between attainable goals and unrealistic dreams?

In short, a financial dream is only unattainable if the plan of saving for it is unrealistic in your budget. You need to make a list of all your goals and the priority in achieving them. For example, a short list for me is:

1. Retirement
2. Emergency Fund
3. Children's Education
4. Yearly Vacation
5. Christmas Shopping
6. New Car(s) (New to me anyway)
7. New Home
8. New Boat
9. Camper
10. Vacation Home

As you'll notice, the two items that I personally need the most are at the top of my list, and gradually going down the list the items get more and more for luxury instead of need.

Next I need to figure out how much total I have to save. My wife and I together will bring in about $85,000 this year. Our fixed monthly expenses run about $3300 a month. We put away 10% in my 401(k) and my wife's IRA, this will bring our total amount leftover to around $15,000, that will need to cover food, gas, entertainment, home maintenance, and savings. A very conservative estimate says we can live on $500 per month in groceries, and $125 per month in gas. This takes half of my $15,000 right away, leaving me with $7,500. The conservative estimate for home maintenance in 1% of your home's value. My home is worth around $225k, so I will set aside $2,000 for home maintenance. This leaves me now with $5,500 to spend on entertainment and savings.

Now is where we have to figure out how important our savings goals are, and if they are worth giving up current luxuries. I would like to eventually have a vacation home, but maybe not if I have to cancel my netflix, tivo, and broadband internet service now to save for it. This is the balance you need between current and future wants.

Retirement is covered already through pre-tax contributions. And I usually put about $200 per month (or $2400 per year) into my emergency fund. This is money I will use in the case of an emergency (bet you couldn't have guessed that). I might tap into it if I'm laid off from my job, or have an unexpected medical expense.

I have set up a step based savings plan for my first child's college. I will pay $50 per month for the first year, and increase contributions by $50 each year after that. So, for this year, that's $600.

One luxury we have is having parents who like to pay for vacations (I guess it's a bribe to get to see their grandkids), so our vacation expenses are usually limited to whatever "extras" we decide to do. I will save $75/month ($900 this year) for use with vacation.

Christmas shopping hits us all every year, and I like to spread out the cost across the whole year instead of getting the big bill every January. We have quite a few people to buy for, but we are also pretty savvy shoppers. I will base our needs on about what we spent last year, $1000.

This leaves me with $600 per year in savings for a new car. Yikes! That's not enough! After 30 years of savings I could *maybe* buy a pinto. Lucky for us I have our current car payments figured into our monthly expenses. I can hope that when these cars are paid off we can sock away those payments for awhile before needing new cars.

So what this leaves us with is about $50 per month for entertainment spending. Along with that, I currently have no savings towards:

6. New Car(s) (New to me anyway)
7. New Home
8. New Boat
9. Camper
10. Vacation Home

At least these are mostly luxuries, and the new home I am kind of saving up for buy paying my current mortgage. I am building equity that I can use to buy a new home in the future.

At least now I know, I had some goals that are unattainable with my current income. Next year I will re-evaluate both my income/savings and my goals. My goals might change, and I might need to rebalance from one goal to another.mortgage calculator