For the past few weeks we’ve been working to prepare ourselves to have more money in the new year, and actually make that new year’s resolution come true. We’ve looked back on our financial year, started tracking expenses, and today we are going to decide on our financial priorities.
Determine your Financial Priorities
I’m going to assume that if you are reading this you don’t have an unlimited source of income. (People who do, don’t usually spend their time reading about how to save money.) So, since you have a limited supply of money, you have to prioritize what you spend.
In this post I’m going to help you answer these two questions:
- What should my financial priorities be?
- What should I do after I decide on my financial priorities?
What should my financial priorities be?
Start by making a list of everything you spend money on each month.
Here is an example to get your started:
- going out to eat
- shopping for clothes
- gifts for others
- dance/baseball/any type of class for a child
Really think about it and I’m sure you can come up with a long list of things that you spend money on each month. If you’re having a hard time making this list, look back on your credit card and bank statements to see where you’re spending your money. If you’ve been following along with this series, you should also reflect on the expenses you’ve tracked during part two.
Once you’ve listed everything that you spend money on, reflect on the items listed. Are there any expenses that aren’t important to you? You should cut those out. (We will focus more on this next week in my how to cut expenses post.) Just cross them off your list. If you’re struggling to cut out the extracurricular shopping, the ideas in my 5 Tips to Shop Less post can help.
Then, think about which expenses are the most important to you. For the large majority of us our mortgage/rent payments will be at the top of the list followed by our bills and groceries. While we should work to reduce the cost of our bills and groceries, these are all assumed expenses. They’re necessary.
Now, think beyond those most necessary expenses. What is the most important thing that you must pay for? Put a 1 next to this item.
What is the second most important thing on the list? Put a number 2 next to that.
Then, continue this process until you’ve either crossed out or assigned a number to each item on your list.
I did this myself. After going through the list and giving my first list and marking it up, I created a second list with each of my most important payments listed in the order that I assigned to them. If you prefer a neat and tidy list, you may want to do this too.
Here is what my second list looked like:
- home improvements
I recommend keeping your list short. Focus on the things that are truly important to you and your family. Of course, your list will vary depending on your specific circumstances.
If you’re married, it’s a smart idea to consult your spouse when making this list. You’ll want to get them on board for the next step!
What should I do once I decide on my financial priorities?
Once you know what your financial priorities are, that’s where you should be devoting your money. Anything that you have left over after you’ve paid for your necessary expenses (mortgage, bills, groceries) should be going towards these priorities in order of importance.
Put simply, you should be paying for your priorities before you spend a dime on anything else. This is the best practice because if you are paying for anything that is extra first, you may find that you don’t have enough left to pay for the things that are really most important.
Practice makes perfect
Every time you get paid, allocate your funds to your financial priorities first, before you buy anything else! I know this can be super difficult, especially at first. Over time, this will become your habit and it’ll be much easier keep up with this routine.
Don’t get discouraged!
Keep in mind that your financial priorities will change over time. For us, once we kill off our debt, we’ll be able to shift our priorities and focus our money elsewhere. If you find yourself struggling, spend some time thinking about why you chose those priorities. That might be all you need to find the motivation you need.
And remember, this will get you closer to your goal of having more money in the new year!