Financial Education # 1: Setting Priorites

This is a part of the series of articles based on the theme ‘financial education’. If you read my ‘mistakes series‘ you’ll know how naive I was about financial stuff. Now I have learned most of the things about money, but I am still learning. This series is in an effort to educate myself about money, and it’s always best to begin with the basics. Today’s issue is on setting priorities.

---

An important stepping stone toward financial freedom is setting your priorities. Once you know your prioritiess you can act accordingly. Otherwise, you’ll run after one goal to another frustrating yourself at the end. The most immortal steps toward setting up your priorities are: (1) identifying goals, (2) prioritizing the goals, and (3) planning for the goals.

(1) Identify your goals

We all have some goals in our lives — we either dream about them or think about them casually. But in order to be able to fulfill our financial goals we need to modify the way we see them. Make sure that you are not thinking about building a castle in the air. Second, you may have numerous financial goals, but choose the ones that will lead to you to a financially strong ground in future. Always keep in mind that you are not alone in this journey, so include your family in all your goals. Jot down your financial goals first; if nothing comes to your head offhand, here are some ideas: achieving financial independence, paying off credit card debts, saving for kid’s education, saving for retirement.

(2) Prioritize your goals

A twenty something couple should first plan to pay off their own college loan before starting to save for child’s college education. It does not mean that they should NOT save for the child’s education, but their priority should be to pay off their own student loans first — longer you defer it, higher amount you pay for it! So first, list all your goals and identify which ones are most important to you at that point of time. Remember that time is on your side and priorities change with time. There may be several goals which are conflicting with one another (e.g., the example I gave earlier), but you got to resolve the conflicts; in other words, you ought to arrange your goals in order of priority. Whenever you plan for vacation or a big ticket item (e.g. television, laptop, car, home), ask yourself whether it is going to take you toward your goal. If it takes you away from your goal, you should probably cancel the idea.

(3) Plan for your goals

Once your have a prioritized list of goals you should plan how you are going to achieve them. The first step is to focus on your income and spending habit. When you have a clear idea about how much you can set aside after the living expenses, you can plan for your goals. Make a budget of how you are going to spend your money and how much you are going set aside to fulfil your goals.