This is a guest post from my friend Ryan Guina, who writes about money at The Military Wallet. Ryan is one of my circle of smart-military-money folks, and he's a particularly great resource for National Guard and reserve issues.
Budgeting can be a challenge for many people. But it doesn’t have to be. One way to make budgeting easier is to create your budget based on spending priorities. You will almost always feel better about spending money on the things that are most important to you. And yes, this includes essential bills. Just thinking about missing the rent or your mortgage payment can be enough to recognize how important these bills are to our wellness!
Take a few moments to think about your financial situation. If you are unhappy with your situation, take a few moments to think about why. Are you spending money on a lot of things that don’t bring value to your life? If so, you may be able to find ways to cut back on spending on those line items and spend on what truly matters to you.
In order to avoid frittering your money away on less important things, it can help to create spending priorities so that you are taking care of what's important to you first. That way, you are less likely to reach the end of the month wondering why you don't have enough money to do what you want.
Identify Your Values
The first thing you need to do is identify your values. Recognize what is important to you. Be honest. Whether that is spending time with friends and family, supporting expensive hobbies, giving back to your church or favorite charity, or anything else that requires time and money. Also, examine your other values. What's important to you? Some things that are most important to me (aside from eating out) include:
- My family, and spending time with them
- Being involved at my church
- Paying my monthly obligations (mortgage, bills, groceries, etc.)
- Giving to charity, especially the local Food Bank
- Preparing for the future (retirement, emergency fund, saving for our future, etc.)
- Travel/new experiences
- Music, and improving my talents in that area
So, my first priority is to be able to spend time with my family. Luckily, I don't need to spend a lot of money to enjoy an evening with my spouse and children. I can often do this by simply blocking off the time on my schedule. The rest of the things that are items that might require expenditures, and I want to be able to make sure that the most important things are taken care of first. And that is usually fairly easy, since I make an effort to align my spending with what I value.
Spending According to Your Values
Now that you have evaluated your values and decided what's important to you, it's time to put that knowledge in action, and spend according to your values, as well as according to your obligations.
If your most important goal right now is to get out of credit card debt, then more of your money should go to debt reduction after you meet your primary financial obligations. When you allocate more of your money to debt reduction, you'll see a bigger impact, and it will encourage you to keep going. Plus, you'll feel good because your money is doing what you want it to do.
The same situation applies if your goal is to use any extra money in your budget for investing. Say, for example, your goal is to become a millionaire. You will only achieve that level of investments by systematically saving and investing for years.
When you have your spending priorities figured out, and you devote your money to funding those priorities first, you will feel more satisfaction, in general, with your life and your finances. And, if you do have to cut back some months, you can do so by dropping the items at the bottom of your list. That way, your spending cuts are made to less important items, and you still have money to fund the things most important to you.
What are your spending priorities?