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Discovering Your Financial Priorities

in Do What You Love, Money Basics, Our Financial Journey, Sell Your 'Stuff'

Financial Priorities

I recently received an e-mail from Jon, a Man Vs. Debt reader, discussing his views on my recent post about Maintaining Balance: Is Getting Out Of Debt A Need Or Want.  In his e-mail he reflected on how his he and his wife had juggled their own balance issue while climbing out of debt:

“While scrimping to retire our debt and save appropriately, my wife and I have come to realize that each person has their own priorities, and we can’t measure ourselves next to them because each family is putting their resources to use in a different fashion, according to their priorities.”

Jon brings up an excellent point.  Our underlying financial priorities are what truly guide our decisions and actions.  Each person or family will have a slightly different order of their priorities.  Therefore, it will always be hard to measure our successes or failures alongside of them.

Through my discussions with Jon, I’ve come to the conclusion that committing to constantly growing the awareness of your own financial priorities may be a more effective route.  Discovering your current financial priorities is the first step in being able to restructure them to meet your long-term goals. Without knowing where we’ve been and where we are, it’s nearly impossible to predict where we are going.

Jon continued on…

“We NEVER went out to eat in the first aggressive year of our debt reduction period, but we soon realized that we connected as a couple best when we got out of the house and got to a quiet restaurant and let someone else prepare our food and clean up after us.  We now eat out once a week.  It’s a priority for us.  Relationships are important to us too, so we also decided we weren’t going to turn down a dinner invitation from friends or family because of money.  We each drive a car that has 100,000 miles on it and carry a mortgage that’s just 20% of our monthly income, but we’ve allocated some resources to other areas that are priorities for us.”

This statement seemed liked a glimpse into my own future.  Right now we are still extremely motivated and committed, but as I’ve outlined in past posts we are struggling with overall balance.  Once we complete our move overseas, prioritizing our social lives will be absolutely essential.  We have a strong support network of family and friends here, but don’t know even one person where we are going.

The key to all of this is that Jon is mature enough in his financial journey to be able to sit down and reflect on his priorities and how they have changed throughout the last few years. His awareness would enable him to adjust his priorities if he so desired, just as he did to help achieve better balance in his relationships.  This seems like a key step that is often overlooked by people.  I know I still am working on establishing this sort of maturity in my own life.

An Honest Look At Our Own Financial Priorities

  1. Basic Essentials -  So far, we’ve always managed to place our basic essentials before anything else.  For us, this includes budgeting for food, shelter, utilities, clothing, and transportation.  We do our very best to maintain these at their “basic” levels.  We eat the majority of meals at home, rent cheap shelter, work to minimize utilities, buy used clothes, and drive cheap paid-for cars.
  2. Insurance – This is so important to us that I almost included it in “Essentials.”  We are careful to always carry health and car insurances.  Both are high deductible and simply meant to help in the case of a rare catastrophic event that could ruin our financial situation.
  3. Avoiding new debt -  This has shot up the list over the last year.  Sometimes it feels like this could even be #1 on our list, but deep down I know I would go into debt to buy basic essentials or to keep the minimal amount of insurance in place.  Luckily, we’ve been able to lower our living expenses and save enough to where I feel confident we will never need new debt again.
  4. Emergency Fund – Again, this is relatively new on our list within the last 6 months.  I can’t explain how awesome it feels to have a nice emergency fund to be able to fall back on.  We would only touch this money if we had exhausted every other option in the event of a true emergency.
  5. Frugally Traveling – It’s obvious by our recent actions that moving to Australia has taken priority over any of the other lower items on this list.  We’ve been saving very diligently for this and I’ve outlined my struggle between saving for traveling and paying off debt many times before.  It should be noted that we plan on backpacking very frugally and working once we arrive.  We hope to minimize the amount of sacrifice required from our other financial goals.
  6. Paying Extra On Debt – The next three categories are where maintaining balance becomes difficult.  Right now we are allocating much more resources to paying off extra on debt.  Because of this, our social interaction and material rewards are a little tight.  Overall, this is the priority that will allow us to accomplish our other goals faster, as long as we don’t get burned out in the process.
  7. Social Interaction – Other than a few really close friends, we’ve really been slacking in this area.  Since the birth of our daughter, we’ve done very little to build new friendships or rekindle old ones.  We are starting to crave this priority, which will be absolutely essential when we move to Australia.  We’d like to allocate some extra resources here.
  8. Material Things – This isn’t as big of a desire for us right now.  Like everyone, we still like to occasionally have material things, but almost all of them are related to our upcoming trip.  We’ve done an awesome job of selling most of our possessions in order to be able to travel extremely light.  This also goes hand and hand with our desire to minimize expenses while traveling.  I would like to keep this at the bottom of the list!

Notable items that are currently not on our list of priorities at all…

  1. Retirement - We’ve decided to prioritize both getting out of debt and traveling while we are younger ahead of retirement.  I really struggled this year, on several occasions, with wanting to fully fund two Roth IRA’s using our newfound savings.  We understand we are sacrificing some down the road, but are firmly committed to eliminating debt before focusing on retirement.
  2. College Funding – My daughter turns 1 year old this week and I really wish we were in the position to have some college funding already underway.  This simply isn’t in the cards for another couple of years as we will be debt-free with retirement underway before we start committing to college.
  3. House Fund – Please don’t bring this one up around my wife.  She’s got a little case of the house fever, but there are several factor against moving this onto the prioritized list.  Again, we want to be debt-free before buying a home.  We’re also committed to traveling the next few years, which doesn’t lend itself to home ownership very well.  Buying a little $80,000 house here in the Midwest and having the government give us 10% off is really testing our financial goals, though.
  4. Life Insurance – This is something I would like to move up with the other pair of insurances.  If I’m being honest though, we don’t have it, so I can’t sit here and say it’s a priority.  I know I would like 5-10 year level term insurance, but just haven’t lit a fire under my butt to research it.  Maybe I’ll chronicle my search in an upcoming post to help motivate myself.  Any advice here would be appreciated!
  5. Real Estate Investing – As you may or may not know, I started and ran a property management company before selling to my partner.  In addition, we’ve owned 8 low-income rental units over the last couple years.  I am a firm believer in the power of 4-20 unit multifamily apartments and would eventually love to get back in this business.  However, before this could be a real possibility everything else above would have to be firmly underway.

Just like my Financial Network Map, the process of sitting down to construct this post has been an eye-opening experience.  I read a ton of personal finance content and like to think I have a firm grasp on my situation.  There is nothing like actually putting it in print to really test your understanding.  If you haven’t actually wrote out your own financial priorities I strongly suggest you do so.  If you feel the urge, I’d love for you to share them below!

Have any suggestions or insight to shed on my financial priorities?  Is there anything I forgot?  What is the order of your own priorities?  Are they similar or drastically different?  Please leave your comments below or e-mail me directly!

{ 9 comments… read them below or add one }

Kelly April 16, 2009 at 9:10 AM

It is possible and easy to obtain life insurance for a young person.
It shouldn’t cost you much (we pay $60/month for term insurance for each of us w/ a $500K payout for me and a $1 million payout for him).
It is ESSENTIAL.
In fact I would put that before paying extra to your debt.
Try Accuquote.com for a bunch of quotes or call your current insurance company.

I loved reading this post, you are so right that every family and even person (makes for an interesting marriage some days!) has different priorities.

Good luck finding balance, it’s something we struggle with every day, and I don’t know that will ever go away as things constantly shift within the family (not to mention external priorities such as work, family, friends, etc.).

Kelly’s last blog post..Carnival of Personal Finance features Centsible Life!

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kosmo @ The Casual Observer April 16, 2009 at 10:04 AM

I think you might be surprised at how affordable term life insurance can be, especially for younger people. I am 33, have 500K of term coverage, and I think my coverage is about $20/month (I know what the combined premium is for my wife and I, but can’t immediately think of how it is split).

Term is a LOT cheaper than whole life, because it is a pure insurance product, and not an investment (i.e. there is no “cash value”). The price of the term policy does increase each year, of course (as you get closer to the grim reaper).

Since you have a child, I would make this a high priority. Imagine if you died tomorrow and your wife had to run the household on just her income. I’m not trying to scare you … My wife and I bought our life insurance before our daughter was born (she’s 19 months old now). We had some smaller term policies through work, but wanted something that would pay off the mortgage, college for the little one, etc.

We took our tax rebate last year (the special check, not the normal tax refund) and dumped it (plus a few extra bucks) into a 529 plan for our daughter. Good idea, horrible timing.

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Baker April 16, 2009 at 11:19 AM

@ Kelly – I know, I know… Thanks for the kick in the butt. I am going to try and search for some in the next few days! I’d like to prioritize this with the other insurances, as well!

@ Kosmo – Yeah, I’ve researched it some and it would be incredibly cheap for us, too. I just have been putting it off and ignoring it! Don’t worry about the timing by the time she goes to college, I bet that 529 will be back on track!

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Tina Fortune April 16, 2009 at 11:22 AM

Each day I eat Ramen Noodles for lunch and did it for a year without eating out at work. My family and I scrimped and saved and unfortunately, we did not have balance. As a single parent, (receiving NO Child Support), I sacrificed for four years to save for a home. I ended up building and purchasing our home in August 2008 and in March 2009 paid off all of our cc debt that I accumulated. In 2009, I earned a promotion that was equal to my new mortgage (including taxes). So now, I added balance to our lives. My children and I had OUTDATED wardrobes so I added clothing alllowances, monthly stipends for the kids and fun money to the budget. Our tithe increased and all else stayed the same. We are now working on building our savings.

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Baker April 16, 2009 at 11:33 AM

@ Tina – Wow! What an awesome story! Thanks for sharing an example of how hard-work and determination pay off in the end. It sounds like your children are extremely lucky to have someone like you who is willing to really sacrifice. I’m glad you can finally add some balance into your life and your story motivates me to stay committed!

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Cathy April 16, 2009 at 12:00 PM

I know it’s a pretty heated subject among many people, but for what it’s worth, I agree with your decision not to put much into retirement while you have so much debt. When I was at the peak of my debt, I made the same decision. I figured if I didn’t get out of debt and keep my credit under control, I wouldn’t have a retirement. I don’t want to be a Walmart checker when I’m 70 years old. Now that I am free of debt, I have all my money available to me, and all that money I used to pay to creditors pays my retirement. I’ve been able to fully fund all my retirement options, every year. I’ve run a number of financial simulators, and I am able to hit all my goals, with some to spare. You and your wife are younger than I am, so you should do even better! :)

Cathy’s last blog post..Weird Recession Fact: Online Dating Enrollment Up

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Baker April 16, 2009 at 12:21 PM

Cathy – It’s worth a lot! It’s one of the things that is always in the back of my mind, even though deep down I really do feel we are going about it the right way! When I am retired, I want to be able to work only when at at something I desire.

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Aspiration's Purse April 16, 2009 at 4:04 PM

I know what your wife means with house fever hehe but I have too much debt.

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Personal Finance Student January 18, 2010 at 1:40 PM

I think the key advice is avoiding new debt and living within our means. Good overall advice though.

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