Part of my “plan today, or plan to fail” approach involves prioritizing. With the money coming in, where are the most important places to put it? What gets first dibs on that cash, and what is the least important spending category?
As a nurse, I am well-practiced at prioritizing. I would start my day gathering information through start of shift report, gather assessment data, then make a list in my pocket notebook of the problems I needed to solve for my shift. The most important pressing needs got first dibs on my time (can’t breathe? bad heart rhythm? crucial medication? pain?), and fires that popped up during the day meant an instant reshuffling of rank order in my mind. That antacid order doesn’t matter as much when the patient suddenly starts dying.
When it comes to financial planning, priority matters too. If you have crushing debt from high interest credit cards, can’t afford food and school fees, and are in danger of losing your housing, you are in need of financial CPR. Surviving is your focus, and should be priority number one. If you are just beginning learning to prioritize, I think Dave Ramsey gives very solid advice about what to prioritize first.
Mr Thrifty and I have never had credit card debt in our marriage. We’re in a place where we have paid off all vehicle loans and student loans, only owe our mortgage, have a 5-6 month emergency fund, and now have our sights set on bigger goals. Our work income easily covers our basic needs, and we choose to live frugally to try and meet those bigger goals.
Our priorities now are :
- Maintain emergency fund. (Why is this #1 when it is already complete? If we have an emergency that depletes this in any way, filling it back up becomes the first priority.)
- Minimum 15% gross income in retirement, including maximum allowed amounts in tax-advantaged Roth IRAs.
- Pay cash for my graduate education. (Why is this #3 instead of #2? Because we can’t retroactively go back and fund two years we would have missed in those tax-advantaged retirement accounts.) We save in 3 months increments, then go on to #4.
- Extra house payment. We calculated if we pay $500/month extra on our mortgage starting January 1st, we can have it paid off by 2025. (Once we hit the extra $500 in our monthly payment, we go on to Priority #5).
- Save towards the $40-45,000 Great House Overhaul (roof, windows, HVAC, fence).
- 2017 Disney trip. We plan on doing Disney when I have graduated. This is 20-22 months away. I’m not sure yet how much to budget, but this is the only time we plan on ever going, and want to make an extended trip. We are driving down in our van. I’m anticipating $3K tops.
- Car replacement fund. My husband’s car will need replacing in 3-5 years, and we want to be prepared and pay cash. We want to have $15K socked away.
- Early retirement investments.
When circumstances change, priorities can change too. Once January of 2017 hits, my last school payment will be in, and we can start funneling funds to other priorities more easily. Once the house overhaul is complete, we fund Disney, etc.
Priorities can help you plan what is expected to come in, but can also make handling a windfall that much easier. Just this week, we learned we will be receiving an unexpected windfall. Because Priority 1 is already fulfilled, we knew immediately that it would be earmarked for Priority 2, our Roths. Our windfall ended up being exactly what we needed to bring our Roth funds to 100%.
Not only are our finances easier to handle with prioritization, but it makes our marriage easier. We have never argued about money once in our relationship. We make the decisions as a team, and either stick to them or renegotiate. There were exactly zero arguments about getting a new TV or taking a trip after our windfall, because we already had had a level-headed meeting long in advance that determined where to put every penny.
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