Priorities for your money – Needs before wants.
While some of our expenses are naturally more vital than others, some are by our own choices. Most people, especially the younger generation, constantly complain that they don’t have enough money. If you see their income and bank accounts, this really isn’t the case. It’s just they fail to keep track of their expenses, and hence don’t understand where their income vanishes away.
Though it’s perfectly fine to spend on a few luxuries once in a while, the priority should always be ‘needs’ rather than ‘wants’. In managing your budget and your income, you have to learn to differentiate between the two. To prioritize your expenses, start with needs and secured debts and transition towards wants and unsecured debts.
Setting priorities for your income.
Wants and needs
The best way to get started is to enlist your personal definitions of wants and needs. This way, you’ll have a guideline to review when your mind starts convincing you to make a purchase. Always try to be as objective as you can.
Prioritize your finances
Ideally, the differentiation between your wants and needs is the foundation of your income management. This will help to prioritize and differentiate which expenses are really necessary and which can be omitted from your list.
Budgeting
One of the important steps in prioritizing your income is to create a workable budget. List down all the “needs” and ensure they can be covered by your income. The balance amount can be used for your “wants”, or saved.
Now, that doesn’t mean that you need to suppress all your wants. For example, if you wish to own a car or a bike, you can plan to save from your income for them. This is completely reasonable, and quite healthy. If you work hard, you should reward yourself once in a while. As with many things in life, this comes down to moderation.
Determining necessities from luxuries.
Remember that savings should be included in the “needs” portion of your budget. You can cut down your luxury overspending like entertainment, dining, movies, etc. and redirect some of that spending into your savings account. You’d be surprised how micro-transactions can add up to large savings over time. Inculcate money-spending habits to spend wisely on necessities rather than luxuries.
Don’t bust your budget on overspending.
There are so many things that people are not able to decide if they need or want. In the moment, they feel they need them and so they spend more money rather than sparing. In retrospect, they realize what they felt was want, not need.
They fail to draw a line between their needs and their wants. They bust their budget on overspending expenses, from holidays to new clothes, from meals out to shiny cars. This is perfectly fine if they are affordable. However, if you have a goal to become free of debt, if you are saving towards your retirement or want to focus your efforts on a house deposit, you need to set priorities for your income.
Getting started right away.
Most people have wonderful excuses for not starting any planning for their financial life. Eventually, these people end up scrambling at the eleventh hour for a plan.
If you’re waiting for the “right time” to start saving, stop. There is no right time. It will always be a challenge, even if you make plenty of money. It’s funny how our wants tend to grow with our income.
The sooner you can start saving the better. It will begin to add up but can’t do so until you get it started.
Determine your Financial Priorities.
When you are trying to shape a financial plan or reach a certain financial goal, it is vital to have an idea of your financial priorities. After all, without setting priorities, it’s impossible to decide what you should do with your money.
So, with a little introspection, figure out what actions you ought to take to reach your financial goals. Determining your financial priorities can be a tedious task and might take a little bit of time. The good news is that once you figure out what your priorities are, it becomes significantly easier to get your finances on track.
Prioritizing expenses in order of necessity enables you to meet basic needs, protects your credit, and lowers your financial stress. This, eventually, allows you to focus on finding ways to cut unnecessary costs or increase your income. So, you can pay all of your bills, loans, and debts every month and even start saving for a wonderful future.
