Money is a very hard thing to organize and keep track of. Making a budget and being aware of your spending and saving is a great way to ensure that you stay out of debt and have enough money to do the things you want. Sometimes, however, it is hard to decide where to direct your money, spending wise or saving wise. This road bump is one of the biggest reasons why most people don’t write a budget. That is why it is best to start with your priorities to feel confident in your budget and get the most out of your plan.
If you have trouble organizing your money priorities, it is best to get down to the very basics of what you have to spend money on to make a priority list. The best place to start your list, if you are truly challenged and somehow mentally unable to distinguish between something you want and something you need, is to look up Maslow’s hierarchy of needs. Not to get all AP-Psych on you or anything, but this pyramid of needs very accurately lays out what humans need to survive in order of importance from the bottom of the pyramid up.
On the very bottom of the pyramid are basic needs such as food, water and sleep. These should be the very first things that you spend your money on, because if you do not eat and sleep you will most definitely die. The next level up includes employment, shelter, and health. These things are the next level of importance because while you would probably not die without these things, your life would be incredibly uncomfortable. If something does not fall within these bottom two tiers, it probably can be categorized as a ‘want’ instead of a ‘need’.
To quickly summarize, all of the things that you need to be alive and comfortable are in the bottom two sections of the hierarchy of needs. Anything that falls in the categories above the basic needs should not be your top priority, especially monetarily.
After you have determined the difference between a need and a want, you will have a much easier time making a budget that includes some financial goals. Obviously, you need to prioritize spending money on your basic needs. Once those are taken care of, however, you have some freedom to do whatever you want with your money. It is also worth noting that you can jump around on the hierarchy of needs at this point or completely do your own thing.
Make some realistic goals, such as paying off your student loans, car, house, etc. that are important to you and your life. Loans are a good thing to make a priority to pay off because the sooner you pay them off, the sooner you can keep that money for yourself and your family. Put your less important goals on a back burner until your more important goals are paid off. (Priorities) For example, if you want to save up for a vacation but you need to pay off your house first, begin putting a little money away for vacation but direct most of your funds to your house payments. That way, when you do take the vacation, you don’t have any regret or worry about how you will pay the house payment next month.
Make goals that will lead to financial security for you and your family. There is no reason to prioritize any other way. The quicker you reach financial security, the better. Next, go for things that will make you happy or feel fulfilled, such as the family vacation or buying a puppy for yourself and the kids. These things may not be one hundred percent necessary, but will make your quality of life much higher, which is definitely a good thing.
While you should stick to your money goals, you also need to accept that life is going to happen and most likely interfere with your plans. This is ok. When something happens that compromises your goals so much that you can only pursue one or severely limit another, ask yourself some simple questions such as, ‘which one of my goals affects more people?’ and ‘which goal will cause more trouble for my life and family if I put it off for awhile?’ Refer back to Maslow’s hierarchy of needs. If things on the bottom two tiers are compromised by one goal, this is the one that should be put on the back burner. It is not always fun to defer from your plan, but it is necessary at times to make sure your life and your families’ lives keep going smoothly.
Start thinking about your priorities and your goals as soon as possible. The more time you have on your side the better, especially as far as money is concerned. If you start planning and actively pursuing your goals as a young person, you will have a much easier time reaching them by the time you have a family/steady career/ want to settle down/ fill in the blank. For example, a person who starts putting money in their IRA at age 20 and stops after ten years will have more money at 65 than someone who starts at 30 and puts the same amount in for the rest of their lives.
Your main concern should be the big things. Pay off your student loans and get out of debt as soon as you can. Put some pressure on yourself to get the big financial things done in as small of a time frame as possible. While stress isn’t necessarily the best in one’s life, without it nothing would get done. The positive stress is the kind you have over the top priorities. Use this stress to control your spending. That being said, life is lived in the present, so you should try not to stress about the small things you spend money on now. Remember that spending money is a big part of life and while the goal is to save money, it can’t all be saved and is meant to be enjoyed as well.
You should also take into account the fact that your priorities may change. At age 20, your financial goals will most likely be wildly different from your goals at age 40. Re-evaluate your financial goals every year or three years or so, and tweak your financial situation to meet the new financial goals that arise as life continues.
Best of luck.