The importance of setting financial goals cannot be overstated. Many of us start off our financial independence by living hand-to-mouth, particularly while we are students, in our first job, or coping with a burgeoning family.
We tend to muddle on through with very few pennies to spare and racking up debt as we struggle to get to grips with our finances and pay off debt.
But there is a better way and it doesn’t matter at what age you start to take control, by following these simple steps you can achieve a healthier financial outlook.
The best way to prioritise your financial goals is akin to Maslow’s Hierarchy of Needs. If you’re not familiar with his theory of personal growth, it’s quite simple: you need to fulfil the first, most immediate need, before moving on to the other, more frivolous levels.
5 Ways to Prioritise Your Financial Goals in Order of Importance
The first and most important goal is to make sure you can fund your daily existence – can you afford to eat, drink and keep a roof over your head? Are you bringing in more cash than you are spending?
If the answer is no to this question, then you will be incurring additional debt each month, but even if the answer is yes, you can still benefit from reviewing this primary element.
Write down your guaranteed income each month and all known expenditure – make sure you include rent or mortgage payments, utility bills, food and drink, as well as any debt repayments. Be honest and realistic; don’t forget to make provision for items such as annual insurance premiums.
Now, deduct your expenses from your income to see how much you have left each month to enjoy yourself, rather than just exist.
If the two don’t add up, then you need to either trim your spending or work out how to increase your income. This process is simply called budgeting or spending plan. Having a budget or spending plan helps you keep on top of finances.
If you don’t get on top of earning more than you spend each month, then you will not achieve any of the other financial goals.If you don’t get on top of earning more than you spend each month, then you will not achieve any of the other financial goals.Click To Tweet
Once you are on an even keel you should look to gain a little security. Before you do anything else, you should make provision for an emergency fund to cover those unforeseen disasters.
Next, think about putting some money aside each month and / or paying off debts. Both are important, but take on different priorities given on the external money markets.
At present, the interest accrued on debts far outstrips the amount gained on savings, therefore it makes more sense to pay off your debts first, before you focus on long-term savings.
We’ve all heard about pensions, tax efficient savings, the stock market and property investments, but once you’ve secured your Physiological and Safety needs, you can start to look towards these vehicles to achieve a sense of belonging.
Rather than just following the herd though, it is worth speaking to a financial advisor to make sure that you are choosing the best option for your situation.
This is where you really take control of your financial situation and leverage your portfolio to maximise your benefit. There might be options to improve your tax code, review your pension or adjust the risk levels of your investments accordingly.
This goal is where you make your money work hard to give you the future you deserve.
This is the ultimate goal, usually considered to be financial freedom, where you are maximising all the opportunities available to you, reinvesting your returns and able to retire early and live off passive income alone.
You need to have achieved all the other financial goals in order to reach this stage, but it’s perfectly feasible if you follow the first four steps.
Take a moment to assess where you sit on the financial goal priority ladder, and now think about how you can reach the next level. Where are you now and what will you be doing today to reach the next level? You can leave a comment below. We’d love to hear from you!