Many times it happens that you are doing things that improve your personal finances but on the other hand you are sabotaging yourself, doing others that eliminate the benefits of those that are good .
In this way, you can end up in a worse financial situation.
Imagine this situation
George bought a house 6 years ago but has not been able to meet the mortgage payments and is about to lose his home. During all those years, he saved 10% of his salary for his retirement which was the “ right thing ” and what everyone recommends, start saving for retirement as soon as possible.
Now George realizes that if he had not destined that money for his future retirement and had done so to pay his mortgage he would not be with this serious financial problem.
In the end George, decides to use all the money he had saved for his retirement and allocates it to the payment of his mortgage. And in the end at least he doesn’t lose his house.
George was doing some things well. He was contributing a very healthy amount of money for his retirement and was taking important steps to become the owner of his own house … a moot move, anyway, depending on your feeling towards what it means to get mortgaged.
George was doing a good thing with his right hand and another, possibly also good, with his left hand. But both were pulling in opposite directions .
Why does this happen?
George had multiple objectives but no priority was assigned . It is evident that he was giving both his retirement and the payment of his home the highest priority and since he had not determined which is really the most important thing for him, he has damaged both.
Due to not being clear about his priorities, George has lost all of his retirement savings and has damaged his image as a good payer with respect to the bank since he had some unpaid installments of his mortgage.
That is why it is important to prioritize your financial movements . This can be really overwhelming because there are numerous financial goals that everyone recommends doing as soon as possible in addition to what you personally have.
Save for retirement now, save to buy a house , save for a trip to India, save for your children’s education. They are just some examples.
Few people can really juggle all these things at once, so you have to figure out which ones you will follow with top priority and which ones will be in the background.
How to Assign Priorities?
- Make a list of all your financial goals.Everyone. Do not leave even one. Saving for retirement, saving for the education of your children, investing to generate passive income and not completely depending on your work.
- Remember to distinguish between similar objectives . Saving for retirement and investing to generate passive income may be similar, but they are two different goals.
- Order them by importance to you . You can do it manually or help you with this finance tool for everyone . Simply, you have to add your goals and then the tool matches them by asking you which one you think is most important. Finally they will be sorted according to your answers. You may be surprised by the final result.
- Your basic expenses are the highest priority . Your fixed expenses that you have each month is the most important and you have to place it in first position within your objectives. This includes paying all your bills and saving for your emergency fund. I repeat, this is the most important and everything else must go behind. This way you will avoid what happened to George.
- Start working to achieve your goals . If George had done this, he would have had his mortgage payment as the highest priority, higher than retirement savings.
As he had been paying his mortgage, the remaining money could have been dedicated to his retirement. It would not have been 10% but if, perhaps, 5% and thus would have been fulfilling both objectives without problem.
Do not worry if your list is not optimized perfectly. You just have to use common sense and adhere to the plan to achieve your goals without jeopardizing your financial situation.