Setting spending priorities will allow you to process your income in a rational way, while giving you the satisfaction that your wealth objectives are on their way to fulfillment.
The Key Takeaways
• How you spend your money shows what you value in life.
• Setting spending priorities will help you align your spending with your values, resulting in a much more fulfilling life—financially, emotionally and spiritually.
How to Set Spending Priorities
Determine what is most important to you. Envision how you would like to see yourself living life. What kind of example do you want to be for your children? You may want to have enough money for retirement so you won’t be a burden to your children. Paying for your kids’ college may be a priority for you. You may want to pay off your mortgage, or pay off credit cards and live debt-free. Tithing may be important to you. Maybe you want to travel.
Next, look at how you are currently spending your money. Look for areas you currently spend money on that are not as important as your desires. Could you stop eating out as much and pay an extra $100 a month on your mortgage? Could you drive your current car a few years longer and apply the amount of a new car payment toward paying off credit card debt?
Now you are ready to work on a budget. Reallocate your income in ways that meet your priorities and values. What may have seemed impossible may actually be within reach, once you have your priorities and spending in synch.
What You Need to Know
If your income is reduced or your expenses increase (due to loss of a job, illness or medical emergency), set new spending priorities right away. Discretionary spending will probably have to be reduced in order to meet necessary expenses. Some necessary expenses may even need to be reduced, for example by moving to less expensive housing or temporarily sharing a car. Cutting expenses to match your income instead of running up credit card debt will be much more rewarding in the long run. Being frank with your family will help them understand the situation and give them opportunities to help save money and/or increase income.
Actions to Consider
• If you don’t know what you are currently spending, go back through credit card statements and checkbook registers and tally your spending by category. Using a computer accounting program like Quicken will make it easier to track expenses.
• Separate necessary expenses (like rent or mortgage, insurance, groceries, utilities) from discretionary expenses (clothing, dining out, entertainment, personal care, etc.).
• Annual expenses (like insurance or property taxes) should be broken down into monthly amounts and those amounts set aside into a separate account so the money will be available when needed.
• Look around your home and in your closets. How much do you think you have spent on clothing and furnishings? How much of that was unnecessarily spent? Could you do better in the future?
• Spouses need to talk openly about spending priorities; some compromises may need to be made, but sharing the same values, priorities and goals will help alleviate tensions about finances.
If you require counsel, contact a Menlo Park trusts and estates attorney today.