One of the most important things you can do for your finances is to understand your priorities. I think a major reason that so many people end up in financial trouble is because they haven’t taken the time to consider their financial priorities, and create a spending plan or a budget that reflects what’s important to them. Taking the time to consider your priorities can be a big help — and result in better money management.
Needs vs. Wants
The first thing you need to do is determine the difference between needs and wants. This will help you a great deal as you prioritize your monthly spending. Needs are things require for survival. Food, shelter, clothing and some sort of transportation to a job are needs. These are things that you must have in order to survive. Other items, such as a superfluous car, entertainment or junk food/fast food, are wants. Being ale to recognize the difference between needs and wants is vital when you set your financial priorities. Needs should be taken care of before wants are addressed.
What Do You Value?
Once you have distinguished between needs and wants, and figured out which items should be considered more important than others from that standpoint, you need to think about what you value. Think about your financial goals, as well as your hopes for the future. Also, think about what you enjoy now, and what you feel is important. Consider what gives you the most pleasure, and what you think that you are morally obligated to do.
For instance, if you are religious, you might value the idea of tithing, and rate that a high priority. You might feel that it is important to help others, and place a high value on charitable donations. Do you think that it is important to work hard now and prepare for a future that doesn’t include work, or would you rather have a little more fun now and work into your later years? Additionally, you need to think about whether you enjoy things or experiences more. Would you rather have a new big-screen TV, or do you prefer to travel to a city you’ve never seen? Are you tired of debt and ready to go debt free?
Carefully consider what makes you tick as a person, and encourage any kids you might have to think about these issues as well. Setting financial priorities is about making tough choices, and your child may need to decide between playing a sport and participating in Scouting, or make a decision about being in band or in theater troupe. You will need to make those decisions as well, and your children need to see you making the tough decisions.
Adjust Your Spending to Line Up with Your Priorities
Once you know what is most important to you, it is time to look at your spending and then make adjustments so that what you do with your money reflects your values and priorities. The most important items should be funded first, and the least important items should be dropped of the list when necessary.
In recent years, many people have spent money on things that weren’t really important to them. As a result, more important things might have been neglected, or debt might have built up as families refused to prioritize. Either situation can lead to financial stress, as well as general dissatisfaction with life. If you take the time to prioritize your finances, and if your spending reflects your priorities, you will be more likely to enjoy your life — and financial freedom.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.