Financial Freedom still means setting Priorities

Having financial freedom certainly provides flexibility in how you live and spend your money. Knowing what your passions are can provide direction in how to spend your time and resources. There are however many other areas in finance that require funding. Knowing what priorities you have and then dedicating funds towards those costs will provide peace of mind and ultimately lead to having financial security.

So what are your financial priorities? In addition to your lifestyle costs, such as food and shelter, you must consider funding your retirement, large expense items (down payment on a home or child’s education), paying off debt, and vacations. You will also need to set aside savings in case of an emergency. Emergency savings will provide peace of mind knowing if anything happens where you would require access to finances that you have the money available. All these areas require planning and savings.

Where do you start? It can be overwhelming to think of the financial need in all these areas. Often when faced with what can seem like an overwhelming task many people choose to do nothing. Besides where do you even begin?

Your first step is to list your priorities in order of importance. Note that this is not in the order of what an expert tells you are your priorities. A financial expert selling investments would no doubt advise you that saving for retirement (with their retirement account) is your main priority. Other advisers may indicate paying off debt is your top priority. While someone selling educations plans would have you believe that is your number one priority.

We all have our own biases as to what should be the most important financial priority. I believe having an emergency fund with three to six months of income saved is a top priority and will provide peace of mind knowing you have financial flexibility should something unforeseen happen. What really counts is what you view as being of most importance. Financial freedom is about funding your personal choices. Do not let sales people disguised as financial experts lead you into investing in something that they said is a priority. There is no consensus among financial planners as to which areas of finance are most important. Some believe paying off debt ranks ahead of retirement planning while others believe the opposite. Find out how your advisor is paid and you may have an indication as to why they are recommending one service or product over others.

There are several ways for you to fund various priorities. You can decide to allocate a percentage of funds to each area (I would recommend this option). You may also decide to allocate all savings towards funding one goal and then when that one is funded move on to the next. There is no wrong way of allocating savings towards your goals. The important thing is to start (or continue) to fund financial your areas of importance.

Tomorrow I will reveal the 3rd “P” to achieving financial freedom. Here is a clue… without this one piece you are doomed to fail.