INTRODUCTION
It is important to prioritize your spending in order to get the best outcome for your finances. This will often mean delaying those items that you want in preference for something which is really needed. For example, car repair expenses should have priority over that new smartphone you saw advertised on TV. There is a system you can use to decide on how to prioritize your discretionary spending and this is explained.
How to prioritize your spending
We all spend money. That is the purpose of getting a job or being in business. All of the expenses involved in living need to be paid for somehow. Once the necessities are taken care of, what is left over is called discretionary spending money. It is up to us to make a choice with whatever discretionary spending money we have. We can save it or we can spend it, it is up to our individual choices.
Some folk fritter away their spending money because they have no plan to make the most of what they have.
Two people can have the same level of income and the same outgoings but one has a financial plan and the other does not. I can tell you that the difference in financial positions between the two in the long term will be massive.
The truth is that both have a plan, one a plan for a favourable financial outcome and the other a plan for financial failure; the core difference between the person with a financial plan and the one who does not is priorities. They each have different priorities on how to use their money.
How do you establish priorities?
Here is a simple system.
Make a list of your top five goals on what you are saving for.
This could be to save for a smartphone, savings, new car, holiday, pay off debt, buy a new tv, or whatever.
Once you have written out your five items for your list, place a number besides them, one to five in no particular order of preference.
Now put them in groups of two.
One and two, one and three, one and four, one and five, two and three, two and four, two and five, three and four, three and five, and four and five.
You will have ten groups of two.
Next place a circle around your preferred option in each group of two.
Here is an example.
Sam lists his top five goals (not in order)
- Paying off Debt
- Buying a cellphone
- Buying a motor vehicle
- Saving
- Going for an overseas holiday
The first group is Paying off debt V Buying a cellphone which if I was Sam I would circle paying off debt.
The next group is Paying off debt V Buying a motor vehicle. Once again I would circle the paying off debt option if I was Sam.
The third group is paying off debt V Saving and once again I would circle paying off debt because by paying off debt you do not have to pay interest on the money which has been borrowed.
Go through all of the other combinations and the option which has been circled the most is your priority.
This all clarifies your thinking.
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