Wednesday, March 14, 2018
Prioritizing Your Spending
As we are in Back to Basics Week here at Budget Boss, I think it is important to have a conversation about priorities. I have these conversations with my clients all the time. Dropping the word priority while we chat brings up subjects like family, health and the future. The question is: When you look at your financial plan, does your spending match your priorities. For most of us, it does not. If I were to ask people who spend a good portion of their money at restaurants or bars if that was a priority for them, most them would say no. If it is not a priority, then why do you use a good chunk of your disposable income on it? Uhhh, ummm, yeah. It’s time for a “woke” moment friends. We have all seen those, “You are more powerful than you can imagine,” motivational clips on Social Media. While I puke a little in my mouth every time I see one, they do ring true. Your dollar is powerful, very powerful. It has the ability to change your life but only if you direct it to your priorities. Where you spend it is who you are, that’s the truth. Today, I am going to speak about prioritizing your spending and what should be important to you in your financial plan. Let’s get real for a minute and not be afraid to be ashamed of what we’re doing. Use that self-shame as motivation to make things better.
Know your pay
How easy is it to know how much you get paid? Pretty damn easy right? But do you truly understand what you get paid and how it affects your life? This may offend a lot of people out there, so I am going to apologize in advance. If you make less than 40K per year, you are living at the bare minimum level of existence for a single person. I know because I have been there much of my life. At that level you will find it hard to pay bills, cover expenses, and save money. Knowing exactly how much you get paid and how it affects your lifestyle is crucial to setting your priorities. Why might you ask? If you wish to advance in life, and your current job does not pay you enough to do so, then you need a new job and that should be your first priority. 100 years ago, people walked off jobs and marched in the streets for situations that are commonplace right now. Think about that when you have a shift cut that affects your monthly Bottomline.
Know your must have’s
This one seems easy too but please indulge me for a minute. We all need shelter, food, electricity, transportation, etc. In what forms do we need these items? Do we need a mansion as a home? Do we need a $40K car for transportation? Do we need someone else to cook our food? No, we most certainly do not. What we need to understand is that abundance comes from self-denial. Knowing your pay helps you understand the limitations of your dollars. Are you living in poverty because your “must-haves” have turned into “want-to-haves?” If you need an eye-opener, think back to your college days or your first apartment. You probably lived in abject poverty, with a milk crate coffee table. Somehow you survived and were probably in better shape then too. Why suddenly do you now need luxury items even though you are not rich?
Stop and evaluate
Now that I got you thinking about the stuff you must spend money on every month, it’s time to look a bit deeper. You understand what you make, and you understand what you need to spend money on. How much do you have left over? If it is a lot after you subtract the must-haves from your pay, then you have a clear sign. You spend too much money on crap. I use the rule of thumb that your must-haves should be no more than 2/3 of your pay. If you use that rule and are still broke all the time, then you have a spending problem. If your must-haves are more than 2/3 of your pay, you either need to lower those expenses or make more money or both. Look around at where you live and what your life looks like. If you can honestly say you live minimally and still don’t have much money left over, then you must find a way to make more money. In fact, all of us should always strive to make more money. We must keep pace with inflation or else we lose in the end.
Decide what’s important
So, we now understand what we get paid, know what we must have, and have evaluated the situation. Do we understand what’s important now? Family, health, and the future are the common answers. What are you doing to protect those things? What are you doing to make those things better? I believe in 2 major concepts in terms of financial freedom: Grow and Protect. Watch your money grow and protect that money. The money could be your house, your investments, and your lifestyle. The protection is making sure you guard against any threat to that growth. Have you set up any systems to grow your financial outlook or protect it? Remember, money is a tool for living a better life. Does your spending habits align with your priorities? Yes, I ask that a lot…..
What can go?
Are you starting to see that what you spend a good portion of your money on is meaningless crap? Things like nights out, beers with friends, trendy restaurants, a gas-guzzling car, designer clothing really don’t matter in the grand scheme of things. Things like the future of yourself and your family, buying your first or next home, protecting your paycheque are actually more in line with what you say are your priorities. Would you rather spend 15% of your income to achieve those things, or would you rather spend that 15% on the things that we both know don’t matter? Now you know what should go. Being rich and being wealthy are different. Anyone can be rich, and anyone can lose that richness. Wealth is something you can’t lose because it is not an amount, it is a mentality. There are people I know that are considered lower-class and are the wealthiest people around. Wealth is a state of mind that you have your priorities set. You focus on what’s important, not what may feel good at the moment. So, what can go? I think you know.
Pay the priorities
I believe in 4 fundamental aspects of financial planning. They include:
- Saving money for everyday life
- Saving money for retirement
- Protecting your life
- Protecting your paycheque
If you pay those 4 priorities, nothing can touch you. Saying it’s too expensive is a cop-out. Saying it doesn’t matter is a cop-out. Saying nothing will happen to you is a cop-out. If you make it a priority to handle those 4 things you have made it a priority to handle the things in your life that matter most. By saving for everyday life, you help yourself and your family grow and survive the day-to-day. By saving for retirement you make sure you flourish in the future and possibly leave something behind to your loved ones. By protecting your life, the ones you love will never go without because you are no longer here. By protecting your paycheque, every goal you have is still intact should you become injured or sick and you will never be a burden on those around you.
The products are simple and yes, they cost money. Just a reminder, everything in life costs money. The only thing in life that is free is giving a shit. Will a portion of your pay go to taking care of these priorities? Yes, it certainly will. We then go back to the first question I asked: What are your priorities and is how you spend your money inline with them? You should have a better idea of that now.
“Our life is the sum total of all the decisions we make every day, and those decisions are determined by our priorities.” – Myles Munroe
Email – firstname.lastname@example.org