If you missed Part 1, Step 1, you can catch up HERE.
The Secrets to Saving: Priorities! Priorities! Priorities!
By now you’ve probably been thinking that these ideas to save money aren’t really secrets. The real secret is more about how to get yourself to follow the steps of a plan and to decide just what decisions to make and where to focus your spending and saving. Hopefully, you’re seeing that it’s important to make conscious decisions about money and be mindful about how and why we do the things we do when it comes to spending those hard earned dollars.
There will be many times during this process that you look back and will wonder why you made some of the choices you made in the past–don’t beat yourself up for it, but learn about yourself and be mindful and motivated to make better decisions for your present and your future.
Keep in mind that how and where you spend your money and your time reflects your priorities. When you look at your money situation, does it reflect what’s really important to you? Also keep in mind the goal is not to be money obsessed, but to take control of your financial situation and your money so you can be free of money worries and to USE money, not to let it use you! Money is NOT the end goal, but it is a tool to reach your goals. So with that in mind, let’s explore the next step in putting money in its place in our lives.
Step 2. Your task: Understand the Basic Priorities!
Whether you are in a financial “mess” or are doing okay but want to improve your relationship with money, you will find this information helpful! And whether you “found money” to pay yourself first and accomplish Step 1 or not, Step 2 and setting priorities will either help get you there or take you to the next level!
When you were looking into how to “pay yourself first” in Step 1, you probably found some things easier to decide than others. You may have even realized you just can’t save anything and still meet all your commitments. If you are super tight with your money each month or even spend more each month than you bring in, it was probably difficult if not close to impossible to pay yourself first. So you may need to back up a little, and before you start paying yourself and putting money into a savings account, you need to be thinking about and sorting your priorities and taking care of them first.
Let’s start with a few questions….
When you are running short of money in any given month, what do you “cut corners” on? (What doesn’t get paid or what don’t you buy?) If you don’t usually run short, what would you consider not paying in the unfortunate event you didn’t have enough money to cover your monthly expenses?
Rent or mortgage payment
Credit card payment
Student loan payment
Personal loan payment
Food (to eat at home)
Clothes for work
Alcohol or cigarettes
Clothes for the kids
Going to the spa, the movies
Eating out (includes fast food, coffee shop, dining out)
Car repair (preventive mainenance)
Electric bill, gas bill, water bill
I don’t cut corners, I borrow more money
The Basic Priorities–Meeting Needs
We need to build a good foundation before we can even think about a hefty savings account/emergency fund, getting rid of our debt, and building wealth. While we are doing this, be mindful not to add additional debt. Allocate and reallocate your current resources as needed to meeting these priorities. If you have challenges doing this, evaluate all your identified “needs” and make sure they are not “wants”.
Here we are talking about necessary and healthy meals to meet our nutritional needs, including providing food for our family. Eating out and buying expensive snacks is not necessary food. Shop smart, menu plan, avoid waste. Be mindful of your food shopping choices including what you buy and where you shop to get the most from your food dollar while providing for this basic need.
Housing/Shelter (including utilities)
Housing/Shelter includes your home as well as utilities such as electricity and water. This means that once you and your family are fed, you pay the rent/mortgage and electric or water bill. Be mindful of waste, including how you set your thermostat or turning off appliances and lights and the impact on your bill. Many utility companies let you monitor your daily usage so you can see your day-to-day trends and how even small changes can add up on your monthy bill. Keep in mind that Cable TV is not a necessary utility. Do you really need the home phone? Be sure all these basic priorities are taken care of before adding wants.
Good reliable transportation is also important. If you need to get to work, you especially need to be able to get there dependably. Most families in our area must have at least one vehicle due to the limited or non-existent public transportation. So you need to plan for your vehicle expense including paying for your car, fuel and maintenance costs. Be mindful of how much every trip to town costs in fuel and “wear and tear” and plan your trips and combine them when you can to be efficient. Look into options for car pooling. It all adds up. Keep in mind that you don’t need the most expensive vehicle to meet this basic need for transporation. If you have high car payments interfering with your other priorities and goals, you may want to consider “downsizing” to a more reasonably priced or cost-efficient vehicle.
You and your family need appropriate and adequate clothing. Be mindful about what is truly a need, what is really sufficient, and separate it from the “wants” and overpriced trendy clothing. Shop around and shop smart.
These first four priorities may sound familiar to you.
We are talking about the “Four Walls” that Dave Ramsey referred to in his book “The Total Money Makeover”. They involving using our money first for the essential things to keep us safe, alive, and to keep us going. But there are two other critical things to put top on your list of priorities before you move on to building your savings, eliminating debt, and building wealth. Not everyone will have to deal directly with the fifth priority, but if you are one of the many Americans who do, you need to realize this priority is very important and right up there with food, shelter, transportation and clothing.
The fifth priority: Student Loans and Taxes
We are all familiar with the saying that “the only two certainties in life are death and taxes.” Well, if you have student loans, you may add the certainty that you will need to pay your student loans to that list. Student loans and taxes are grouped together here because they both are obligations that will NOT go away whether you want to pay them or not and whether you think you have the money to pay them or not. For both student loans and taxes, there are very strict rules and circumstances on whether or not they can even be discharged during full Chapter 7 bankruptcy proceedings. The bottom line is to find a way to pay your tax debts and your student loans. Most employed people don’t worry too much about the taxes part because of payroll deduction, but be sure you take the right amount out so that you don’t end the tax year with a tax debt you cannot pay. Self-employed people must plan for tax payments in their budget. You should be making your required payments for taxes and any student loans as a part of your essential priorities before you move on to a savings fund and paying down other debts.
These five priorities need to be in alignment before you can move forward with savings, controlling and eliminating debt, and building wealth. Once you plan and use your money true to these five priorities, you will be well on the road to controlling your money and not having it control you!
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