Prioritizing Financial Goals
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July 28, 2007 When you think about financial goals, you probably think about the big stuff, but it's not the size of the goal that determines how important it is. The little things matter too. So how do you determine what goals need to be at the top of your list and a priority in your budget? The following items are listed in order from most important to least important:
Everyday Survival
These are the things we need to survive as humans. Every culture has different ways of meeting these needs (just think about all of the National Geographic programs you've seen). You will need to figure out the best way to meet these needs for yourself. - Shelter
This is your home. Securing a roof over your head is the most important thing you can do. Even if you become homeless or lost in the woods, finding a place to protect you from the weather and possible violence is your top priority. Your rent or mortgage payment is the first thing that you should put into your monthly budget. It makes financial sense to buy a home rather than rent because when you rent you get a place to stay, but when you buy you get a place to stay and an investment that you can sell later for even more money. If you are buying a home, owning your home outright (paying off your mortgage) should be one of your biggest goals because when you pay off your mortgage, you don't have the anxiety of wondering if you can make the house payment each month because there is no payment to make. Instead you can use that money for reaching some other important goals. Of course, you must pay for fire insurance and taxes as well, even after you pay off your mortgage, because the government can take your home if you don't pay your taxes, and insurance is necessary to ensure that you will continue to have a home if your current home gets damaged (plus, some governments require that you have insurance), but these are far less than your mortgage payment. - Warmth
If you live in a warm, tropical climate, you already have a source of warmth called Mother Nature. If you live anywhere else in the world, you'll need to have warm clothes (just the basics, not the latest fashion designs) and a source of heat (wood stove, electric heater, gas heater, fireplace, etc.). Of course, you'll need to make sure you have a home to heat in the first place, so you must make sure that you pay your rent or mortgage first. If you heat your home with fire, you'll need to pay for the fuel (wood, gas, pellets, etc.), maintenance, and supplies. If you heat your home with electricity, you'll need to pay for the electricity and the maintenance of your heating system. If you heat your home with gas, you'll need to pay for gas and the maintenance of your heating system. - Drinking Water
Drinking water usually comes in the form of tap water (the most economical choice for water), so you'll need to pay for the water supply to your home. This is often done through the city or private water utility company and often includes the sewer charges if you use a sewer instead of a septic tank. For some people, they must use well water from a well in their yard. If you use well water, you'll need to pay for the maintenance of the pump, filters, antimicrobials, and possibly a water softener system. With either tap water or well water, you'll also need to pay for the maintenance of your pipes. - Food
The most economical way to purchase nutritional food is to buy whole fresh foods that you plan to use immediately, dried or canned foods that don't need refrigeration, and staples that don't need refrigeration (flour, salt, etc.). If you need to store items that require refrigeration or freezing, you'll need to pay for your appliance and electricity or gas for your refrigerator or freezer, unless of course you live in a climate where it is already below 40 degrees Fahrenheit outside, in which case you can just store your food in an animal proof cabinet outside. You'll also probably want to cook food as well, so you'll need a heat source for cooking (wood stove, microwave, stove, oven, solar oven). You'll have to pay for your cooking appliance and fuel source (wood, pellets, electricity, gas). - Sanitation and Hygiene
This includes disposing your garbage (compost, recycling, trash), sewer or septic tank, water, and cleaning supplies for both your home and your body. I highly recommend that everyone with a yard have a compost pile to recycle your vegetation waste and provide fertilizer for your yard. Most people have garbage service which requires payment or have to pay a fee to add their garbage in the local dump, even if they haul it to the dump themselves. Some places let you burn your garbage, but I highly advise against this because it's bad for the environment, and it smells bad too. Recycling services are usually free, and sometimes they'll pay you for your recyclable material. Some recycling services charge you for the convenience of having them pick up your recyclable materials for you. Your sewer fees are often handled by the city or county. If you have a septic tank, you'll need to pay for the maintenance and pumping of your tank. In either case you'll need to pay for the maintenance of your drains. Water should already be a part of your home in the form of drinking water, but if it isn't (such as if you only drink bottled water), you'll need to have a water source, such as tap water or well water, and you'll need to pay for the costs involved with your water source. Cleaning products for your home can be quite basic. White vinegar cleans almost everything. Baking soda is an excellent product for scrubbing. Borax works on more stubborn items, like toilets. Isopropyl alcohol does a wonderful job of cleaning glass. Linseed oil and lemons together are a perfect wood polish. A broom and dust pan are the basics for sweeping, and you can use a carpet sweeper or vacuum for your rugs. Mops are optional if you don't mind getting on your knees to wash the floor. Dish detergent and laundry detergent don't need to be name brands. Vegetable oil soaps are much kinder to your skin than traditional soaps (and they don't contribute to harming animals). Shampoo and conditioner don't need to be the fancy stuff you find in a salon. Toothpaste and toothbrushes don't need to be fancy either. Washcloths and towels are usually better than paper towels and paper napkins because you can reuse them. Don't forget the toilet paper (buy it in bulk to save money). Laundry can be washed the old fashioned way in a washtub or bathtub or you can pay to use a washing machine at the local laundry or buy a washing machine and pay for the electricity as well. You can always hang your laundry to dry or pay to use a dryer at the local laundry or buy a dryer and pay for the electricity and/or gas. - Transportation
As humans we usually need to interact with our society to survive, and that means getting ourselves from location to location to interact with everyone. Transportation can be free, such as walking, require a one time investment with minimal maintenance, such as purchasing a bike to ride, require minimum effort and a small fee through public transportation (which I highly recommend if you are a commuter, especially if you are a student or work at a job that requires you to take work home because you can do it during your commute), be high maintenance and expensive, such as using horses and a carriage or a car. Cars are the most expensive because they require frequent maintenance, fuel, taxes, and insurance. Transportation will allow you to get to where you need to make money, attend school, visit friends, make purchases, etc. True, we can do much of this on the Internet today, but there simply is no equal substitute for doing things in person. - Light
Our ancestors used candles, lanterns, and torches. Today, light bulbs and LEDs are a safer alternatives. Modern methods require us to pay for electricity in addition to purchasing light bulbs or replacement LEDs and lamps. - Health Care
This includes everything you need to stay healthy. Good health is a requirement for survival. In your health care plan (whether it be an insurance plan or a plan you designed based on the best prices and services) you need a doctor, medicine, a dentist, an optometrist, a hospital, vitamins, and the ability to receive emergency or mandatory services.
Emergency Survival
Take everything on your "everyday survival" list and imagine
you suddenly lost your job. You must have a an emergency savings
for such situations. Aim for a savings goal equal to at least 6
months of your current income. This way, if you do suddenly lose
your job, you can sustain your family until you can get a new
job with a similar pay level.
Survival Protection for Dependents
If you have dependents, it is your obligation to ensure they have their survival needs met. If you are alive and well, you probably accomplish this by earning an income (stay-at-home parents earn the amount you would have paid to childcare services). If you become disabled, you'll need disability insurance to make ends meet. If you die, you'll need life insurance (the amount should be your annual income multiplied by the number of years your dependents will need help). I suggest purchasing term life insurance and reducing the amount you need as your dependents rely less on your income. You'll also need to build up a savings that can sustain you temporarily if you lose your job or to cover any amount of time that lapses before your insurance kicks in. Comfort
While it isn't necessary for survival, comfort is an important part of our mental needs. Having a place to comfortably sit, sleep, or eat helps us relax, which is an important component in achieving overall health. Just be aware that there is a difference between comfort and indulgence. A couch provides a comfortable place to sit. A Super Massage-Master 3000 chair is indulgence. Some comfort items may actually be a necessity. For example, air conditioning is often an issue of comfort for many people, but for some people, like the elderly or people who live in very hot climates, it may be required to avoid heat stroke. Education
Education is the single most important thing you can do to better your life. Through education you develop skills. By gaining skills, you can increase your earning potential. By increasing your earnings, you can enjoy more security, entertainment, convenience, aesthetics, and indulgence. Another benefit of education is the gift of understanding. Through understanding we develop compassion and are able to let go of our suffering. I advocate investing in education even before investing for retirement. Retirement
The sooner you save, the more your money will grow. Don't
expect to rely on pensions or social security. Try to put at
least 50% of your savings into your retirement fund. Inexpensive Entertainment
Entertainment is another mental need. There are lots of ways
you can find entertainment for free, but allow yourself to
indulge in paid entertainment now and then: museums, state parks, national parks, zoos, renting movies (pay per view movies), television, books (purchased), the Internet, community events (some of these are even free), pot luck with friends, puzzles, gourmet cooking and baking, etc. Getting Rid of Non-Tax-Deductible High Interest Debt
Debt suffocates you, and it forces you to work your butt off to keep making the payment each month. Imagine how free you would feel if you didn't have to pay those debt payments every month. What would you do with the freed-up money? Sure, you could up your lifestyle, but if you kept the same lifestyle, you could work less and spend more time doing other things you enjoy. Credit cards, automobile loans, and personal loans aren't tax deductible, so it's important to pay these off before you pay off tax deductible loans, like student loans, mortgages, and business loans, which reduce the amount of taxes you have to pay. Pay off the highest interest rate non-deductible debt first by paying extra toward that one debt every month and making only minimum payments on all other debts. Once your highest interest rate debt is paid off, use the extra money you'll have each month to pay off your next highest interest rate debt. Aesthetics
Beautiful things make us feel good. You'll probably feel more relaxed and happier, which both contribute to good health, in a beautiful room than a cluttered or filthy room. It can also help your neighbors feel better, such as when everyone in the neighborhood takes care of their yards and gardens, but another benefit to having a nice looking neighborhood is that it actually reduces crime, so it can also be a security issue. This does not mean that you should install a solid gold bathtub because you like the way it looks (that's indulgence), but you should fix up your shabby house, yard, personal appearance, etc., so you and everyone around you feels more comfortable. Get Rid of Tax-Deductible Debt
When it comes to tax-deductible debt interest, no matter what the interest rate is, it's tax-deductible, so it may not be necessary to pay off the debt with the highest interest rate in this situation. It may be more logical to pay off the smallest debt first just to cross one of the debts off your list then apply the freed-up money toward the larger debts, but if your deductible debts are all about the same amount, go for the highest interest rate first. In either case, I highly recommend making at least one extra payment toward your mortgage. The sooner you pay off your mortgage, the sooner you'll have the security of having a home you can't get evicted from.
Major Events
Vacations, weddings, birthdays, funerals, etc. You know they're going to happen, so you might as well start saving for them now. Moderately Expensive Entertainment
Amusement parks, movie theaters, dining out for fun, road trips, etc. fall in this category. Some people can skip this completely. If you can't cut it out, try to keep it under control. $10 here. $20 there. It all adds up. Stick to your budget and look for less expensive alternatives. Ensure that other goals don't suffer because you go to the movies too much rather than renting videos. Convenience
We don't really need these things, but they are sometimes nice to have. Things such as Internet, delivery services, dining out, cleaning services, etc. should be assessed individually to determine if they are really beneficial. It may be nice to have your lawn mowed every week by a yard care service, but if you can do it yourself (and let's be really honest about this), you should consider getting out there to do it, and you'll get exercise at the same time. On the other hand, a convenience such as the Internet may save you money as well as time, so it would be wise to have it. Indulgence
Indulgence is fine in moderation but should only take place after other priorities are met. Having a whirlpool bathtub instead of just a simple shower may not be necessary, but it can make you feel good, and feeling good is good for your health. The problem with indulgence is a tendency to overindulge. Overindulgence can make you lazy and usually makes you forget about people who are less fortunate than you. You don't need to always focus on being guilty for having moments of indulgence; you probably deserve a bit of indulgence, but you should take into consideration how your indulgence is benefiting the world. Perhaps by having your own private chef instead of cooking your own meals you are providing a job to somebody who wouldn't have one otherwise. Indulging in having an expensive table made of wood from an endangered rainforest is probably going to do more harm to the world by destroying rainforest than the good it would bring from increasing the number of timber industry jobs in that forest. |
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