Fixing Financial Priorities
MANILA, Philippines – Unless you are the latest internet billionaire, chances are, your needs every month are greater than the resources to meet them. Often, what gets prioritized is whatever expense is in front of you at the moment. Taking a little time to step back and list down what you want to focus on will help you handle your personal finances better. There are many things that will pull at your money and all of them will seem urgent, but it is good to recognize that not all of them are important.
It’s easy to get caught in a cycle of trying to catch up with all of the expenses coming in, but just a little mindset change can help break you out of this trap. Consider rearranging your priorities in this way:
- Savings / Investment
Saving and Investing
Many people believe that you can only save if you have a big income. This is a fallacy. The truth is that many high-income earners also have zero savings. This is because as their salary increases, so does their spending. What you need to do to get ahead, even while your income is still small, is to make saving your first priority. A good amount to begin with is to set aside 10% of your earnings as soon as it comes in. As you get better at saving, you can even increase this amount later on.
There are many instruments you can use to save and invest like bank accounts, government bonds, the stock market and even insurance. Insurance companies actually offer many different products that will act as “forced savings” since you have to pay the premium regularly. You not only get coverage, but after a fixed period of time, your money comes back to you bigger.
Whatever is left after you set aside your savings/investment money, you can now allot for your needs. Here is a simple equation you can use:
Income – Savings = Needs
Meeting the Needs
After you have set aside your savings/investment, it’s time to take care of your needs. Expenses differ from person to person and can be especially crucial for those who are breadwinners. A breadwinner supporting their parents would be looking at rent, utilities, groceries, transportation, debt repayment and other operational expenses in order to survive. A breadwinner supporting children would likely have to add tuition, health care, and allowances to that list.
What is key in being able to meet needs is living within your means. That means adjusting your standard of living to the amount of resources available. This is not easy to do, but it is necessary in order to get out or stay out of debt.
For those who are already spending a lot on certain needs, you will have to be creative and willing to change the way you do things. If owning a car proves too expensive, then you may have to sell it for now and start using public transportation, or even walk to nearby places (this will benefit your health also).
It may involve having to live in a smaller space, eating less expensive food, or buying non-designer clothing. You could also drink coffee at home or bring some in a thermos instead of going to expensive coffee places. These sacrifices are for the present, but if you are disciplined in saving and investing, then you will be able to afford better things in the future.
A big challenge in making priorities comes from the inability to differentiate between needs and wants. There are a lot of things we spend on thinking they are needs, when in reality they are just wants. Consider the following statements:
We need to eat. We want to eat out.
Eating is necessary for survival, but eating in a restaurant is not. Wearing clothes is necessary, but wearing designer labels is not. Spending on wants is not a bad thing, but spending on them ahead of your savings and your needs is. It is all right to budget for things like entertainment, travel, and dining out, but they are not the top priorities.
Once you establish a culture of saving and investing, and properly differentiating needs from wants, you will be able to organize and make better use of your resources. Think of yourself as a farmer. When the harvest comes in, you don’t eat all of your seedlings. You set aside some so you can plant, and harvest, the next crop. – Rappler.com
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