You’ve probably heard the phrase “save for a rainy day” so often it’s almost meaningless. However, rainy days really do come, and you have to be ready. This means establishing a budget, which also means some concerns will have to take precedence over others. While we should all have key considerations when setting financial priorities, they do vary from person to person—and from situation to situation. Here’s how to find yours.
Define Your Idea of Financial Security
What would it take for you to feel you could be comfortable, come what may? Create a list of all of the things you believe it would take for you to feel secure, happy, and fulfilled. These might be as extravagant as retiring to a lovely home on a lake free and clear or just living a debt free after raising your children and putting them through college.
Meanwhile, you’re going to need a financial cushion in place to deal with any emergencies that might come up along the way—and they will. Whatever it is, dig down into it, get specific about what it really means and estimate how much cash you think it would take to make it happen.
Prioritize the List
This can be the hard part because day-to-day realities can infringe upon your dreams. When items conflict, a good rule of thumb is to determine which will do the greatest good for the greatest number of people and rank it more highly. Or, looked at another way, which item will result in the most significant harm if it is passed over?
Say for example feeding your kid’s college fund is a priority, but so is banking cash to support you in retirement. How can you decide between your child’s future and your own? Well, kids can get student loans if it comes down to it, but nobody is going to front you with the cash to feather your retirement nest.
Create a Timeline for Each List Item
Your kids will need the school money before you’ll need to retire (assuming you had them in your 30s on the outside), so you’ll have more time to prepare for retirement than their education. Creating an emergency fund for the household is an immediate need, so you need to rank it ahead of just about everything else. These are the factors you’ll need to deal with when you’re creating the budget you’ll need to address your goals.
Be Smart About It
Get rich quick schemes only benefit the individuals proposing them. Don’t gamble with your nest egg; choose your investments carefully. Choose boring overexciting, you’ll be happier in the long run. This will help you avoid staggering setbacks when market conditions go south, as they are prone to do from time to time. Finances tend to be cyclical—with upswings and downswings— so your goal should be to flatten those peaks and troughs into a plateau upon which you can comfortably operate.
Eliminate Debt
Interest paid on a debt for which you are earning no return is wasted money. That’s cash you could be using to further your goals rather than handing it over to someone else to advance their own.
If you’re already in debt and getting out of it is looking unlikely, consider working with a group like Freedom Debt relief to get your obligations reduced to a more manageable level. If you’re behind on unsecured debt, these firms could get a portion of the principal forgiven.
To find a solid company with which to work, look for information such as debt relief reviews. Such articles will provide some insight into the company’s reputation and help you find a firm you can count on to get the job done right.