Friday, April 17, 2009

Prioritize Your Wants

Saving Money Tip #120 - Prioritize Your Wants. If you are getting frustrated because you don’t have the money to afford the things you want to do then make a list of your priorities and their costs. Very few people have an endless supply of money to spend on everything. So unless you want to go into debt, people with a limited income (nearly everyone) must sacrifice things that they do not enjoy as much to spend money on things they enjoy more.

Let’s compare Person A, Person B, and Person C who each make $50,000 per year. For simplicity’s sake, we will say that each person has $24,000 left over after paying taxes, groceries, car expenses, and utilities. Person A lives in a fancy rental apartment with 24-front desk service and a washer/dryer in her unit. She pays $2000 per month for this unit. She loves living there. However, her high rent precludes her from doing other things such as going out and taking vacations. But she does not care. She enjoys staying at home and does not really like to travel. Person B, on the other hand, thinks her life would not be worth living without experiencing other people and cultures. She also loves socializing and eating out. She spends $500 per month for travel and entertainment. To allow her to do these things, she rents a very basic apartment for $1500 per month with no front desk and no washer/dryer in her unit. Person C, however, wants it all. He wants the fancy apartment and wants to go out on the town and take vacations. He rents the same $2000 per month apartment as Person A and takes the does the same types of vacation and entertainment as person B. So Person C goes into debt for $6000 per year.

For all three of these people, there are competing wants – a fancy apartment, entertainment, and travel. However, Person A and Person B each prioritized their wants and made adjustments based on their salaries. Person A spending more on her apartment, and person B spending more on vacations and entertainment. Both people are content with their choices. By prioritizing their wants, they can enjoy what is important to them, while staying within their income. Person C, on the other hand, did not prioritize. He may like travel more than his fancy apartment or vice versa. We don’t know. He wanted everytying and he paid for everything he wants without taking into account his income. Therefore, he is in debt. Person C should have prioritized (or, as an alternative, he could go out and earn more income).

Of course things are not as simplistic as this example, but each of us could figure out how much extra income we have to spend on fun things. Then make a list of your wants and then put that list in order with accompanying dollar amounts. Cut off the list when you are out of money. It would look something like this:

Discretionary Money = $200 per month
1.Vacation - $100 per month
2. Haircut - $25 per month
3. Eating Out - $50 per month
4. Manicure - $25 per month
5. Movies - $25 per month
6. Gym - $25 per month
7. Pedicure $25 per month
8. Cable - $50 per month
9. Cell Phone - $25 per month

Wants may change at any time. You may realize that you really do need a cell phone and can do without getting a professional manicure, so you reorder your wants. Whatever the order, prioritize your extras and cut off those that don’t fit in with your income. None of these things are worth going into debt for.

In Real Life – I cannot say that I ever truly sat down and prioritized my wants on paper. But I do know what is important to me (and for the record it looks very different than my sample list above). Vacation is probably my #1 priority after our needs have been met. I would cut off cable and eating out just to take a vacation once per year. For others, they would rather enjoy cable all year long than a one-week getaway. And that’s okay. Everyone is different. And even though I don’t write down my priorities I do know them in my head. And only the ones that are important to me are in my budget. There is no line item in my budget for manicures or pedicures or even the gym. However, if going to the gym suddenly became important to me again (and it probably should) then I know I would need to tweak something else in the budget – get rid of eating out once per week or perhaps cut down eating out to twice per month and get rid of my cell phone or some other combination of line items in my budget.

The point is – I don’t do it all. In fact I don’t do a lot of things. I don’t belong to a swim club. I don’t buy myself very many clothes. I don’t go to an expensive hair salon. I don’t have unlimited funds, so I use what I have and do the things that I really like with that – going on vacation, eating out, and activities for my children. Down the road, my priorities will probably change and I will have different line items on my budget according to my new priorities. I will always leave things out that are less important to me. What are your priorities? How do spend your fun money? For other frugal tips, check out Life As Mom.


Tracey said...

Very informative post! I definitely agree that you need to prioritize when it comes to how you spend your money.

For example, it's extremely important to my husband and I that our girls take piano lessons. We are willing to give up some of the things we might enjoy doing so that we have the money to pay for their lessons. That is just something that is a priority in our family, whereas other activities may take precedence in other families.

Thanks for giving us much to think about!

Sheila said...

Great post!