When you are trying to make a financial plan, or reach a certain financial goal, it is important to have an idea of your financial priorities. After all, without priorities, it is impossible to decide what you should do with your money — 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 is a little easier get your finances on track.
First, Decide What’s Important to 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 by 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. Setting financial priorities can help you make the changes necessary to get to where you want to be.
Second, Focus On What’s Important
After you have determined what’s important to you, and set some specific goals, it’s time to focus on what’s most important. 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. 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 more money into your 401k than you are putting into a 529.
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.
David’s Note: This is a contribution from Miranda Marquit, who will be dropping by from time to time to give us another perspective on our pursuit to financial freedom. Please help me welcome her and let her know what you think by commenting below.
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