The following post was excerpted from Personal Finance For Beginners In 30 Minutes, Vol. 1, by Ian Lamont. All rights reserved.
The first step in planning for your financial future is seeing where you stand.
But don’t whip out your latest bank statement and pay stub yet. Instead, I’m going to ask you a simple question:
What matters to you and your family?
“Oh no,” you say to yourself. “I bought a personal finance guide, but instead of getting down to dollars and cents, the author is one of these touchy-feely types who wants to know about my inner child.”
Not so! By asking you what matters to you, we’ll be able to better align financial decisions with your lifestyle. Practically speaking, this means you’ll be able to spend money on what counts — and have a better idea about what to cut.
For instance, if your family lives for having fun on the water, then spending and savings should be focused around things such as swimming lessons, beach vacations, and saving for a boat. Things that aren’t priorities can be scaled back or eliminated.
Narrowing down the list
One way to focus on your priorities is to review a bunch of broad categories, pick the ones that matter most, and then list the specific activities or expenses within the key categories:
For instance, someone who prioritizes Business may list “home office”, “seed capital”, “truck”, or “relocation” to support his or her dreams. If you are a fanatic about Sports, either as a spectator or participant, then “season tickets”, “lessons”, or “gym equipment” might be listed as specific expenses or activities you want to invest in. People focused on Education might list “Timmy’s college fund”, “tutoring for kids”, or “grad school.” Religion-focused activities or priorities might include “church fund”, “mission”, or “pilgrimage.”
These are life priorities. Don’t think that you will be able to do financial planning for everything right away. Taking part in a mission, relocating to another state, or leaving your job to go to grad school are serious decisions that might take many years to plan and save up for. But the important thing is identifying what those priorities are, and aligning your spending and saving to support them.
What if all of these categories have specific expenses or activities that are important to you? It’s a common desire to “have it all.” But when it comes to managing your finances and planning for the future, it’s impossible to have everything … unless you’re Donald Trump (in which case you’re probably not reading this guide!)
When listing specifics, don’t include fixed expenses, such as paying back student loans or getting insurance for your car. While necessary, such expenditures aren’t your personal life priorities. As we’ll see in Chapter 3, fixed expenses do have to be addressed when it comes to making spending decisions. For now, you don’t have to include them on your list.
Build your list until you are satisfied with the priorities it contains. Really make an effort to identify true priorities — things that you really want to be a part of your current life, or your future. Knowing your priorities will make it much easier to manage spending as well as financial planning for the future.