When asked about financial priorities, most people respond with general goals, such as feeling financially secure or having enough money put away for retirement. But the truth is that most people don’t give their financial priorities much thought, focusing instead on day-to-day expenses instead of long-term goals. Unfortunately, approaching your finances without thinking about the big picture can mean watching your goals slip away. The first step in avoiding this, however, is identifying the objectives you have with respect to your finances.
Identifying Financial Goals
Financial goals may be difficult to identify. For one, they often change over time. You may have to sacrifice a goal you’ve had in mind for a long time when something unexpected pops up. Paying for a car accident might require money that would have otherwise gone to a new car, for example. You will have to first decide which goals take priority and take care of them first. Only after can you focus on smaller, less-important financial goals. Luckily, you have time to do this; time can help you to compound interest even if you start with a small sum of money. In order to get started, make a list of financial goals ranging from basic needs, such as getting out of debt, to desires and wants, such as buying a vintage car. Then rank them according to how important they are to you. The following are some basic suggestions to help you get started:
- Buying a house
- Paying for a child’s education
- Helping to take care of your parents as they age
- Amassing retirement savings
- Getting rid of student debt
- Savings set aside for emergencies
Resolving Conflicts
Once you have a detailed list of your priorities, you can move forward in making them your reality. Remember that every unnecessary purchase you make detracts from your goals and that even seemingly small amounts of money can grow over time – if you’re willing to wait, that is. Of course, not all conflicts are simple decisions. When something unexpected comes up, such as a child who needs braces or a spouse losing a job, you may have to re-evaluate your priorities. When making a judgement call, it’s important to consider several factors. Firstly, does saving money come at a cost to your or a loved one’s health? Illnesses and unexpected healthcare costs may not be outlined in your list of priorities, but some would argue that being able to improve quality of life by paying for them is why we seek financial security. You might also want to ask yourself how many people your decision will affect – what option comes at the lowest cost? Choosing between your own retirement savings and a child’s college fund is the perfect example of a choice that many people have to make. If you won’t be able to live on pension money and Social Security, your retirement savings should come first. Children have the option of taking out a loan to cover their education.