One problem people have when it comes to money is prioritizing. They either don’t have the ability to sort out what matters most, or they simply can’t decide what’s most important. It’s a skill people need to master because achieving financial success (without a Trump-sized income) requires prioritizing. You have to put your true needs first, and then decide how to allocate what’s left for your wants. Even within your needs category, there are priorities and trade-offs to be made if you want to best manage your money.
Many people assume, for example, that their electric bill is a fixed expense. “Oh, it’s always $200.” Well, that may be true until you start evaluating your usage. Do you keep the thermostat at the same level all day, everyday? If so, you’re missing out on a chance to prioritize (and therefore reduce) your usage. Here’s an example: I cannot stand to sleep in a hot room. Therefore, in the summer, I push the thermostat down to a more comfortable level at night. However, during the day I can tolerate a much higher temperature. If I just kept the temperature cool all day, I’d be wasting money on something that doesn’t matter to me. Instead, I allocate my electric use so that I’m spending the most only during the times of day that it matters the most to me.
It’s the same with clothing and shoes. I need good shoes because I have weird, hard to fit feet. There are only a few brands that fit me well and they are rarely on sale. However, I’m not as picky about my pants. As far as I’m concerned, any brand will do so I choose what’s on sale. Within the clothing category of my budget, I’m spending on what matters the most and cutting expenses on things that aren’t important instead of spending at the same level on everything.
With my grocery budget, I’m picky about my morning cereal, but I don’t care about my condiments. I’ll spend more on the cereal and less on the condiments because the cereal matters more to me. I don’t spend extra on everything, instead I decide what matters and spend on that. You can work through all of your needs categories this way. Your car expenses? Maybe you don’t care about the type of gas, but you do care about the brand of tires. Choose accordingly. You can even do this with health care expenses, to some extent. If, say, you have one pricey brand of cold medication that works for you, buy that but save on the pain killers if you know that any brand will do.
Your wants category is even more flexible for this type of prioritizing. You can’t have everything you want, so figure out what matters the most and spend on that. Maybe you love books but you’re neutral about going to the movies. Spend on your books and rent DVD’s rather than spending money at the theater. Maybe you love the convenience of eating out, but are indifferent about TV. Spend the money at restaurants and drop the cable.
The trick is to evaluate all of your spending to make certain that you’re spending on things that matter the most to you, while saving on or eliminating those things you don’t really care about. Some of the ability to prioritize comes with self-awareness and experience. As you learn more about yourself and discover your likes and dislikes, you find it gets easier to decide what matters most.
You’ll also find that what matters most changes over time. Maybe you used to really care about what sorts of pants you wore but then an injury made it so you have to care about shoes more. Don’t be afraid to reevaluate your spending and switch it up. In this case, you stop spending so much on your pants and spend on your shoes, instead. If you keep trying to spend on things that no longer matter, while adding new things that do matter, you’ll soon find yourself overspending on everything. Whenever you make a purchase or crank up/down the thermostat, ask yourself if it matters to you or if you can get by with something else or deal with being a little uncomfortable. Make the trade-offs you need to make to give yourself the best quality of life for the least amount of money.
(Photo courtesy of dmuth)