I would take Machado for either position, frankly. There's enough concern with Sano's bat where Machado can fill in there. Polanco is decent at SS and probably better suited for 2B.
As far as payroll, right now they have $32 million in committed salary. The commits already are Reed, Castro, and Pineda. In a couple of months MLBTradeRumors will release their arbitration projections and they're usually pretty accurate. I'm guessing it will take $30 million or so to sign our arbitration eligible players. So that leaves the Twins around $65 million.
I don't expect the Twins to match this year's payroll figure, but they have the ability to do so. They should at least be at $100 million so that leaves $35 million to work with.
Machado's first year figure of $60 million doesn't have to be as a salary. They could be creative and offer a portion of that as a signing bonus.
I am planning on the Twins contending next year. They almost have to in my mind. Chicago and Detroit aren't going to be this bad forever. If the Twins expect to do anything with the current core of players, something needs to be done.