It’s important to have an idea of your financial priorities when you are trying to make a financial plan or reach a certain financial goal. After all, it’s impossible to decide what you should do with your money without priorities, not to mention figure out what actions you need to take to reach your financial goals. Determining your financial priorities can take a little bit of time, and it requires some introspection. The good news is that once you figure out what your priorities are, it’s a little easier to get your finances on track.
First, Decide What’s Important to You
According to a survey from Bankrate.com, 38% of Americans list staying current on living expenses or getting caught up on the bills as their highest priority.
Following managing bills, the next biggest priority is paying down debt (21%). Finally, saving is a priority for about 18% of Americans, according to Bankrate.com’s survey.
But what about you? Your financial priorities will be heavily influenced by what’s important to you. This means that you need to honestly look at yourself and your financial situation, and decide what you want. Your spending habits will give you a good place to start. You can get an idea of what is important to you by reviewing your spending over the last few months. This will give you a general idea of what your actions say is important. If you are disappointed by what you see, then you can make changes so that your spending comes in line with what you want to accomplish. Even if you are satisfied with what you see, you can use your past to supply you with ideas for your priorities.
Next, you need to look to the future. What do you want to accomplish? What would you like to do with your money? Be specific. You need to create measurable goals that can be accomplished. Narrow your wide vision down. If one of your priorities is to “save more money”, then say “save six months of expenses in an emergency fund” or “save enough to generate $4,000 a month after I retire”. This way, you can make an actual plan to reach your goals, and express your priorities in a more tangible way.
Do your spending habits line up with what you want to do in the future? If not, perhaps it is time to rethink what you are doing to build a solid foundation. Building a foundation is important in personal finance. Your financial priorities should center on taking care of the basics if you are struggling in those areas. However, the ultimate goal should be to move beyond the basics so that you are no longer treading water and trying to make ends meet. You want to be able to build your assets and prepare for the future.
In some cases, moving beyond the basics means making it a priority to take extra steps. Start by looking at your expenses. Are there things you can cut from your budget to save more money and make it possible to stay up to date on your bills? Next, look for ways to earn more money, whether it’s a side gig or a second job. Figure out how you can get more money coming in to help you establish a little more stability.
Second, Zero in on What’s Important
After you have determined what’s important to you and set some specific goals, it’s time to refine it further. You have immediate needs and obligations that have to be taken care of. These items obviously have high priority. But once you get those items out of the way, you need to decide what else is important and rank your priorities according to the big picture. For example, once you have paid down debt and got your bills under control, you can start using money to build savings and obtain a little more confidence in your financial situation.
You may want to save for your child’s college and pay for retirement, but which is most important to you? If paying for retirement is more important (and it should be), then you need to make sure that you are putting more money into your 401k than you are putting into a 529.
And while you are figuring out what’s important to you, don’t worry too much about what others around you are doing. Let me tell you a bit about how we spend our money.
Since we live in a very traditional community, it comes as a surprise to many that I’m the primary breadwinner (not to mention that I work from home). It’s a little different than a traditional earning arrangement, but it makes it possible for my husband and I both to have careers we like. He enjoys teaching, and because my income covers our needs, he doesn’t feel pressured to get a higher-paying job.
We also find that, because we only have one child, it’s possible for him to have really rich experiences and education. We can pay for him to take music lessons and go to summer camp. And it doesn’t stretch our budget to spend money on his baseball team fees, uniform, and equipment. It’s a nice feeling, and it works for us.
On the other hand, we’ve made the decision to live in a modest home. In our community, someone with our income should be living in a bigger, more expensive home (even though we have a small family). I have relatives whose “starter” homes as childless newlyweds were bigger than ours. We prefer to use our money on other things, so we live in a modest house, in a community with a low cost of living. That way, we have the disposable income to enjoy the things we like best.
Other unique arrangements in our family? Among many other things, we pay for someone else to take care of our yard, and my husband does laundry while I take out the trash (a reversal of what many see as “traditional” chores for our genders).
What Are Your Priorities?
The important thing is that we figured out what kind of lifestyle we wanted, and we decided to make it happen. We like that our son will be 18 well before we’re 50. We like that he’s old enough now for travel to be fairly easy. We like that we can do what we want with our money. Of course, there are plenty of others who disagree with our priorities — and that’s ok. They can do what they want with their own money and their own lifestyles.
The key is to decide what works for your family and your finances, then stick with it — no matter what those around you are doing.
Third, Stay On Track
Once you have ordered your priorities, and chosen to focus on the most important aspects of your financial life, it becomes vital to stay on track. Consult your priorities list often, and look at your goals. Before you spend money – especially on something big – reflect on whether or not it is helping you meet any of your priorities. If it is not, perhaps you should consider doing something else with the money. Your financial decisions should help you reach your goals and reflect your priorities.
Sometimes you may change your priorities as life circumstances change, and as you change. Reviewing your situation and your priorities periodically can help you remain in touch with yourself, and help keep you focused so that your money is being used in a way that satisfies you.
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It sounds obvious that our money should further our goals and be used only on what’s important to us, but putting it into action is far from easy.
If this pandemic has taught me anything, it’s that I can reduce my spending a ton more than what I’m usually capable of.
I agree with you Joe. I’m more specific about what I spend my money on now. I’ve increased my envelope money since this started that’s for sure. My envelope money is my cash saving every paycheck.
Staying on track is what I struggle with the most. I have no problem establishing my priorities but once I do that, I always have these “lapses” where I would just splurge and forget about everything.
Identifying the issue is half the battle, Kelly.
Have you tried printing out your priorities so you have them with you? If you can always remember to weigh that spending against what you think is truly important every time you have to use your money, then maybe you will splurge less.
Nice post, Miranda. I struggle with creating concrete goals and at times, look too far into the future.
If my goal is to: “save enough to generate $4,000 a month after I retire,” how do I know how much $4,000 will be down 20, 30, or 40 years down the line? I feel like this is a dangerous path to take because you may have a higher dollar amount of a smaller relative amount. This could lead to big trouble.
I don’t think there’s really an exact way to figure out how inflation is going to play out. You can use the past as an approximation to bridge some of the differences though. For example, use the last 20 years to determine the next 20 and so on. Also, being conservative for retirement has never hurt anyone either.
Right, but looking at the past 44 years leads me to looking at the future 44 years…and by those standards, I’d need over $8 million in 44 years to have what today feels like $1.25 million. That seems like an impossible goal. Sure, the rate of inflation was high in the 70s, but who’s to say it won’t be that way in the next 30 years (or 5.)?
It might sound impossible but remember that inflation goes both ways. Things cost more but your income also increases due to inflation. $1.25 million was an impossible goal for many 44 years ago, but there are many millionaires in the United States today. Be optimistic and do your best, because you will often surprise yourself with hard work and dedication.
@Daniel: Keep in that the money you have accumulated on the day you retire will not all be needed on the first day. A portion of your money will still be invested in real estate, bonds or stocks possibly. These investments will continue to grow.
Also, you may want to recalculate how much you need. If your number is $8 million you must really want much more than $4000/month or you are planning on living a really long retired life. $8 million divided by $4,000/month is 2000 months or 166 years of income.
Either way… if you think you can, you will, if you think you can’t your right.
Many thanks Miranda Marquit. am really happy having known the fact and how much i spend, i guess i have to reduce my spending habit drastically.
I appreciate.
What I’ve struggled with is not having priorities aligned with my spouse. He says he agrees on our financial path but then doesn’t “stay on track,” and we end up having to go back over the first and second parts again and again.
my pet peeve is watching friends use credit cards when they have the moeny in their checking account. i dont understand why they dont just use their debit cards and pay the expense off asap
I purchased a lot of equipment some time ago which cost a lot (to think I even took a cash loan for those.) and I ended up just selling everything recently because I desperately needed the money. It’s undeniable that people’s priorities change and you can’t keep on the same path just because you feel that your past decisions (purchases) would go to waste. Even up to now I am not so sure but I think that we should just make the wisest financial decision we can as of the moment so if things do change, we can safely look back and not regret the things that we did.
Thanks for stopping by, all, and sharing your thoughts. I also think it is worth noting, @Daniel, that figuring how much you need to generate doesn’t mean that you necessarily need to have a huge chunk saved up. There are things you can do now to start earning a regular income, such as using residual income online, looking for good dividend stocks and protecting some of your assets with TIPS. Retirement income doesn’t just have to come from a large chunk of money that you’ve managed to accumulate over the years; it can also be supplemented by income streams you start cultivating now.
Good point, but I’m very wary of counting on additional income streams. Will social security still be around when I retire? Probably, but I guess I want to take a very conservative approach.
@Moneyning, I guess there’s no way to avoid working hard…o well
Before splurging, I always ask myself this question… Do I need it or do I just really want it? Most of the things that I would normally overspend on are on the really want it list. Needless to say, this has prevented me from buying a lot of useless crap that would bring buyers remorse- Stuff like the play station 3 or smart phones or very expensive computers and clothes that are too expensive. FRUGALITY RULES
Creating a plan and determining what is important will help you plan out. Then you may be able to separate accounts and plan accordingly. I love to travel and have set up a travel fund and slowly put some money in for my next trip.