Happy New Year!
It isn't four months late, it's just a different calendar. That's because
filing your taxes effectively closes the book on the financial year gone by
while opening up a world of possibilities. Will this be the year you break free
from the clutches of debt? Will you set up an emergency fund? Maybe you'll finally
start saving for retirement! New years are typically a time of reflection, and
the financial new year is no exception. It's time to kick back and dream big
about what goals you'll achieve in the financial year to come (provided you've
finished your taxes first)!
Whatever their goals are, many Americans are about to get a big
chunk of change back from the federal government in the form of a tax refund.
How they choose to spend that money will be a good indicator of their financial
priorities. Here, it is worth noting that there's a big disconnect between what
they say those priorities are and how they act in reality.
When surveys ask Americans what their top financial priorities
are, they most commonly name managing bills, paying off debt and saving. Yet,
only about half of Americans plan to save their tax refund or use it to reduce
debt. Worse still, the number of Americans planning to use their tax refund in
those two ways is down for the third straight year.
If you want to know what someone's priorities are, don't ask them.
The answer you'll get is more about what they think you want to hear than what
relates to their actual priorities. If you want to know what someone
prioritizes, see where they spend their money.
Do you ever get the feeling that your financial priorities might
be out of whack? Since you've already got your receipts, account statements,
credit card bills and other piles of paper that comprise your recent financial
history, it's a good time to find out. Don't worry - this won't be nearly as
hard as filing your taxes! Try this 3-step process.
1. Establish your priorities
Going through the daily motions of life, you may never have time
to think about the reasons for which you're earning money. Very few people are
getting up and punching the clock every morning with the hope of building a
Scrooge McDuck-style money room. Most of us are trying to put food on the
table, keep the lights on and provide for our loved ones. Those things are our
priorities.
Write down on a sheet of paper the top five things you want to
achieve with your money Number one will likely be paying bills, but
there's quite a bit of flexibility in the rest of the list. Are you saving for
a down payment for a house? Maybe you want to take a dream vacation or start a
small business. Perhaps financing your children's higher education is a
priority for your family. You might have charities you like to support, or
dreams of retiring early.
Spend some quality time thinking about where you want to spend
your money. If five options feels too limiting, feel free to go beyond that.
Just keep the list in order of what you want to do. There aren't right and
wrong answers here. If your priority is owning the world's largest Barney the
Friendly Dinosaur costume collection, that's fine. What matters is that your
list reflects your values and commitments.
2. Identify your realities
This is where that mountain of paper in front of you comes in
handy. Take stock of your spending in any given month. For each of your
financial priorities, how much of your paycheck goes to each?
Make a list of your top 10 categories of spending. Try to account for
a much of your paycheck as you can. Put your biggest expenses at the top, and
then list all the way down to the smallest. Feel free to make categories as you
go and reshuffle them as patterns become more apparent. Don't stress too much
about where to categorize things. Just go with your gut.
Now, compare the list of expenditures to the list of priorities.
Is your money going where your mouth is? Are you spending to bring yourself
closer to your priorities, or do they just exist on that sheet of paper you had
in step one?
3. Make a plan to fix it
Don't get discouraged if you find you're nowhere near your
priorities. Remember the statistic in the beginning. Half of Americans are
going to spend their tax refund on a big-ticket purchase or a vacation, and
most of them also say they want to save for retirement and get out of debt.
You're not alone in living far away from your financial ideals.
It might not be a bad idea to revisit your priorities briefly.
Perhaps you were too strict when you set your priorities. It might be that you
prioritize day-to-day comfort. There's nothing wrong with doing so, but look
where it ranks on your list of priorities. Is the joy you get from your daily
indulgences worth the trade-offs it brings? In short, given the plans you have,
do you regret any purchases? Those are the ones you want to cut from your
budget and lifestyle.
You don't need to switch overnight from your current financial
attitude to one that's totally in line with what you want your money to do.
Making too strict of a plan will make you unhappy, frustrated and more likely
to bend back the other way. Don't let perfect be the enemy of good.
Pick one action you can take tomorrow to bring yourself closer to
achieving your priorities. Cancel a monthly music subscription and put the $10
into a savings account. Cook in one more time next week and put the difference
toward your credit card bill. Once these changes start to feel effortless, look
for more ways you can tweak your spending habits to make your priorities and
realities line up a bit better.
If you need help reaching your savings goals, we can help. There
are many ways you can automate your savings and assist in keeping you on the
right track. Call 850.505.3200, visit penair.org or stop by any location today!
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