This is the fourth post in the Financial Planning Basics series, if you have not read the previous post you can find it here – The Financial Planning Pyramid
Regardless of the number of goals a person has, it is seldom possible to start trying to achieve all of them at the same time.
Sometimes the monthly cash flow acts as a deterrence and sometimes the timing of each goal comes into play as most goals will need to be achieved at different times in a person’s life-cycle.
Budgeting as the word implies revolves around setting realistic targets or limits on different categories of expenses that a person incurs in a month. But setting a budget is not as difficult as it sounds.
This is the holy grail of personal finance. If you can learn how to prioritize in a completely disciplined manner without giving into everyday shopping temptations – let me know how !!! It’s not easy, especially in Dubai which is a shopper’s paradise.
Nevertheless, it needs to be done. Here are two ways to prioritize.
Ever wondered what is the difference between what the ‘Rich’, the ‘Middle Class’, and the ‘Poor’ buy with their money on payday?
Think about it for exactly 3¼ minutes and come back to this article.
So Method 1 of ‘Prioritising’ your expenses is basically nothing but –
“Every time you tug at your wallet to spend your hard-earned money, try to understand whether the thing you are spending your money on is just ‘Stuff’ or ‘a Liability’ or ‘an Asset’.
Rank your goals based on their urgency for achievement and their importance. Then re-check them against your own gut feeling based on your personal situation and cash flow situation.
Example (assuming your financial advisor has helped you calculate these numbers)
It is obvious that you cannot save for both goals completely starting today so you may prioritize your children’s higher education by putting aside the 100% of the goal for their need first and then allocate the remaining money to your own retirement fund.
Once their education is complete, you can divert all your disposable funds towards your retirement goals.
Have a question? please feel to comment below.
Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide.
He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’.
He helps business owners and professionals ‘Create A Second Income’ through investments.
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