The Key Takeaways
- You will spend your income on what you care the most about.
- By explicitly establishing your priorities, you help align your spending with what you care the most about: financially, socially, even spiritually, etc.
How to Set Spending Priorities
You first need to decide what you care the most about. When you envision your ideal daily life, what does it include? Are your children most important, or is it saving for retirement, or saving for college? Do you want to be debt free, or be able to give charitable or religious contributions? Do you want to see the world?
Now, analyze how you are currently spending money. Are your expenditures and your ideal the same? What changes do you need to make in your financial life to make these two aspects line up? Do you need to spend less somewhere and spend more on something else? Do you need to have a small house or an older car? Do you need to get rid of some credit cards?
Now that you have identified these things, you can create a budget the reflects your new reality. Be realistic, but figure out a way to match up your goals with your savings and expenses as much as possible. You may find out that you can get closer to your goals faster if you follow your budget and establish your priorities.
What You Need to Know
You need to be willing to be flexible with your budget, as life changes may require financial sacrifices. You may have an increase of medical expenses, or not make as much money with your job. You need to review your priorities and budget to react appropriately. You should always try to get and stay out of debt. Cut expenditures before your rack up more debt.
Actions to Consider
- Figure out how much you are spending on what. This may take some time to review credit card and bank statements. Separate your spending by category and think about using an Excel spreadsheet or a program to help you organize your information.
- Separate needs from wants. Be honest and objective about this. Despite whatever your priorities may be, needs must come before wants.
- You may want to break down annual expenses into monthly amounts to help you gradually save for those expenses.
- Look around your home to identify any spending that was not necessary. How can you cut down on this spending in the future? What could you have done with that money?
- You need to be open with your spouse or partner about your priorities. You need to get on the same page, even if you have to sacrifice and compromise to get there. You are working and earning together, so you need to be spending together. This will not only help you financially, but also help your relationship.