Actor Scott Caan of Hawaii Five-O fame once said, "Good things happen when you get your priorities straight." It's a simple sentiment that's also very wise -- and as applicable to your finances as to career, family, and other areas of life.
Managing financial priorities is tough for many Americans. Country Financial's Financial Security Index found that 88% of Americans spend weekly on things they don't need. Four in 10 of respondents also said they'd used savings to buy things they didn't absolutely need. Of course, discretionary spending isn't automatically a bad financial decision, but it works against you if that spending doesn't align with your financial priorities.
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While you're still feeling the buzz of the new year, it's a perfect time to evaluate your finances and set clear, prioritized goals. Do so, and your budgeting and spending decisions will be easier. Plus, you'll be more confident about staying the course to reach those goals.
To give you a head start, here are six common financial priorities, along with advice on how to juggle them.
1. Rein in your spending
If you're not where you want to be financially, overspending is often the culprit. You might make some headway on lowering debt and increasing savings, but it's a losing battle until you address the spending.
For a quick solution, create a budget and switch to a cash system. Withdraw your spending allowance in cash on payday and make it last until your next check. If you don't want to run out of money, you'll be careful about how you spend. Once you develop that discipline, you may be able to wean yourself off the cash budget.
2. Review your insurance coverages
Being underinsured leaves you exposed to big, budget-busting expenses. An annual review of your insurance coverages is a high-priority task, especially if your financial situation has changed. Keep in mind that the purpose of these policies is to protect your cash, home equity, and other assets. Therefore, your coverage limits should increase as you accumulate more assets.
3. Pay off high-rate debt
You've heard it before: High-rate debt is toxic to your finances. Once you have your spending under control, figure out what you owe and how to pay it off. Allocate money for debt repayment in your budget. Then, take the plastic cards out of your wallet and stash them out of reach.
All that's left is to settle into those monthly payments. It may take years to get the balances to zero, but don't get discouraged. Debt repayment is a gift to your future self, and you have the fortitude to stick with it.
4. Save something, anything for retirement
You could put off retirement saving until after you pay off that debt. But it's a better plan to save something, even a few bucks a week, while you're whittling down those balances. This is because saving for retirement is a long-term play. You can accumulate a lot of cash with small deposits, but only when you have 20 or 30 years on your side. When you have just five years or 10 years to save, your retirement plan contributions have to be much larger.
5. Save for emergencies
Emergency funds can seem unnecessary, right up until you lose your job or wreck your car. If you're completely strapped after debt repayments and retirement contributions, plan on putting your next raise entirely toward your emergency fund. Keep saving until you have enough to cover at least three months of living expenses. In the meantime, get in your boss' good graces and drive carefully.
6. Save for other goals like college and a home purchase
It's depressing but true: Debt repayment has to come before you save for other financial goals. The good news is, debt repayment is temporary. Once you get those balances to zero, you can redirect the monthly debt payments into a special savings account that's earmarked for your goal.
Your 2020 financial goals prioritized
Set yourself up for financial success in 2020 by getting clear on your priorities. Good things will happen as a result, and not just because a Golden Globe-nominated actor said so.
