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How to Set Financial Priorities — and Spend and Save with Purpose

There are more different ways than ever today for people to spend their money. A generation ago, we didn’t have to decide which video and music streaming services to subscribe to, whether to upgrade our cell phone or what kind of data plan to buy. We also didn’t have the opportunity (and temptation) to buy anything we wanted online, anytime we wanted to, and have it arrive on our doorstep the very next day.

These and other realities of commerce in the 21st century should force individuals and families to take a hard look at their spending patterns and priorities — especially when you consider how many expenses are automatically charged to a credit or debit card. It can be easy to end up spending hundreds of dollars a month or more on services and subscriptions without even realizing it.

Categorize Your Expenses

A good place to start is to put all of your expenses into categories, or buckets. Here’s one example of how to categorize expenses:

  • Basic needs — These are the mostly unavoidable expenses that are part of everyday life. They are the base of the pyramid in Abraham Maslow’s famous hierarchy of needs and include things like your mortgage or rent, utilities, insurance, transportation, groceries, healthcare and taxes.
  • Self-maintenance and betterment — While these may not be absolutely essential, they are important when it comes to maintaining health and happiness for most people. These include expenses for things like health club memberships, sports, hobbies, social clubs, pets and ongoing education.
  • Time savings and convenience — In today’s fast-paced world, many people have decided that it’s more efficient to pay someone else to perform certain tasks than to do the tasks themselves. Housecleaning, yardwork, grocery shopping, cooking, laundry, dog walking and even driving kids to their various activities are good examples of these expenses.
  • Entertainment and splurges — There are practically unlimited options for this category, starting with simply eating out at restaurants and going to the movies. Concerts and sporting events, shoes and clothing (beyond basic clothes needed for survival), $5 lattes and high-tech gadgets — everything from the latest smart phone to a new big-screen TV — are other common examples.
  • Internet, cellular data and cable/streaming services — It’s true that internet access and cellular data are practically basic necessities in our tech-centric society. But subscriptions for various video and music streaming services can add up fast and even overlap if you’re not monitoring them.
  • Savings and investments — These can be further broken into savings to meet short-term and long-term goals. Short-term goals might include making home improvements or taking an overseas vacation, while long-term goals include kids’ college education and retirement.

Identify Spending Patterns

Now that you’ve categorized all of your expenses, you can start to identify some spending patterns and see where your financial priorities truly lie. The results might be eye-opening.

For example, you might be surprised by how much money you spend each month on entertainment and splurges. Or maybe your technology and streaming expenses are higher than you expected. On the flip side, you might not be saving and investing as much money as you’d like for short- and long-term financial goals.

Here’s the good news: Since you now know exactly where all your money is going every month, you can be proactive in changing your spending patterns for the better. For example, you could decide to reduce your entertainment and splurge spending by five percent or eliminate half of your streaming services and devote this money to saving and investing.

Make Informed Decisions

The beauty of this system is that it gives you the information you need to make informed decisions about spending, saving and investing that are best for you and your family. You’ll no longer wonder where all your money goes every month and why you can’t seem to meet your financial goals. Instead, you’ll have a blueprint for spending and saving with purpose. 

Give us a call if you’d like to talk more about spending and saving, setting financial priorities, and meeting short- and long-term financial goals.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.