Many people have started to work on their New Years Resolutions while others, perhaps you included, are still unclear as to what financial areas in your life you should focus on.
You may have read articles that remind you of the importance to “save more money”, “pay off debt”, and “invest for retirement”, yet how do you determine which financial objectives should take precedence, let alone how to get started?
With limited time and resources to factor in, here are a few suggestions that can help you to prioritize your financial goals this year.
Make a Financial Wish List
Write down on a piece of paper everything that you would like to accomplish in terms of your finances. Don’t be concerned about listing them in any kind of order right now, or thinking that your goals may be unachievable. As the Nike slogan says: “Just Do It”.
An example of a wish list could be:
- Take a two week vacation to Greece
- Maximize Roth IRA contribution
- Save enough money for a down payment on a home or car
- Cut consumer debt load by half
- Help aging parent(s) with their expenses
- Fully fund an Emergency savings account
- Obtain a promotion at work with a pay increase
Being fully aware of what you would like to achieve is a fundamental starting point that helps you narrow down your choices and develop priorities.
How To Rank Your Financial Priorities
Knowing that you may not be able to accomplish everything on your financial wish list this year means that you’ll need to assign the highest value of importance to one item on your list, and order the rest of your options accordingly.
This is where the “personal” in personal finance applies. I may determine based on the above wish list that cutting debt by 50% supersedes everything else, whereas you may feel that having a fully funded E-fund is of extreme importance.
You should base your ranking according to your current financial circumstances and consider the impact on loved ones if you are in a relationship and/or have children. That said, there are exceptional situations like the following where the top priorities are crystal clear:
You are a 37-year-old single mother of a toddler, who has been unemployed for six months, depleted your E-fund and racked up $7,000 worth of credit card debt. Ideally, your first priority after finding a new job would be to replenish the savings and/or pay off the credit card. Taking a two week vacation or helping others with their expenses would not be top priorities.
By being specific and quantifying each goal, you will have more data to help you prioritize your wish list. List out how much time, money and effort would be required to accomplish each item on your wish list. Just as important, make note of the positive impact each option, once achieved, would add to the overall quality of your life.
Achieving Your Financial Goals
There are a few different ways you can achieve your financial goals. You can decide to tackle your top priority until completion and move on to the next priority on the list, or focus on your top two or three priorities simultaneously. The latter strategy will require you to allocate a percentage of your disposable income to each priority you’re working on.
Prioritizing your financial goals gives your money a firm purpose and there is less risk of spending money on things and experiences that add little to no value in your life. Realize that your hard work as an employee or business owner can translate into numerous financial accomplishments once you take the approach of a “means to an end”. View your source(s) of income as a key ingredient in the recipe of a successful financial plan.
It’s up to you to strive for financial success. Beyond your income, your level of commitment along with consistent and concrete actions will be instrumental in moving your goals from a solid priority to achievement.