Setting financial priorities, or failing to do so, can have a significant impact on your overall financial health. Is your car is on its last leg? That’s a priority. Do you need to pay off a high interest credit card? That’s a priority. Do you really want a new smartphone? That may be a priority too. These are financial decisions that can affect when, how, or if you meet your larger, longer-term goals. They’re realistic, actionable, and flexible within your current financial situation.
When I got out of college, I knew that I would eventually want to own a home. I also knew that there were some financial steps I had to take before that was possible. For one, I needed to save up for a down payment. Then I had to make sure I wasn’t tempted to dip into that savings. Additionally, I had some debt I’d accumulated while in college that probably needed to be taken care of. Of course, all of this needed to be accomplished while still paying my bills and enjoying life.
I decided to take action by budgeting and creating a savings plan. First, I took a look at my income, deducted fixed debts like rent, phone bills, food, etc., and saw what was left to work with. I knew that I could probably cut down on my spending, but living a bare-bones existence until I met my goal wasn’t very realistic, so I gave myself a little buffer for unexpected expenses or just a night out.
With my savings goal in mind, I went about setting my financial priorities. I paid off my credit cards and set up automatic transfers into a savings account that I didn’t have easy access to. I started with small deposits at first to test the waters and make sure it was still sustainable with my lifestyle. Every little cut here and extra payment there brought me closer to my goals. Once the debt was gone, I was able to replace it with building a nest egg in addition to growing my future home down payment.
It may sound like plate spinning, and it is, to some degree, but if you’ve ever written out a to-do list, you already know a little something about prioritization. When faced with a lot of things you need to accomplish and a finite amount of time in which to accomplish them, you have to make smart, strategic decisions to get it all done. Sometimes that means devoting your whole day to tackling a big item, and sometimes it means checking many smaller items off your list.
Setting your financial priorities is no different.
So how do you go about setting financial priorities?
Make a List
For me, I started by writing down all of my goals – large and small, short- and long-term. There was the down payment for the house. I also knew I’d probably need a new set of tires in the next couple of years. My car could probably last another 5 or so years, but then I’ll need a new one. I knew I should also start to build up my rainy day fund. And, of course, I need to pay down my credit card debt. Then there’s saving up for a vacation. Oh, yeah, I’d also like to retire some day.
It may seem like an unattainable wish list, but write it all down. By defining your goals as much as possible and estimating price tags and timelines for each goal, you’ll be one step closer to reaching them. Keep in mind that your finances are fluid – and that you can’t predict the future.
This is the hard part. This is where you weigh your wants versus needs. Your immediate needs versus eventual needs. You’ll also include the things that help your personal financial situation versus the things that help others. Like I said, it’s hard.
While there’s no right or wrong answer to what your top priority should be, it always makes sense to keep the big picture in mind. Think: “Will doing X now help make achieving Y easier in the future?” For example, paying down those high or variable interest loans and credit cards so your money starts working harder for you. From there, it’s always a good idea to have something in savings. Both of these steps will help make those larger, long-term goals more attainable.
Like any to-do list, things get marked off and priorities become more urgent the longer they remain. Revisit your progress often. If you become discouraged by your lack of progress or overwhelmed by the number of items left to do, start small. Tackle one thing and keep tackling one thing at a time until it becomes your new normal. Every little bit truly does help.
And don’t be afraid to ask for help. In fact, stop by any Bank Mutual branch and our personal bankers will work with you to help put those priorities within reach.
Just remember, take it one step at a time and you’ll get there.