What Really Are Your Financial Priorities?

The unexamined life is not worth living – Socrates

After working for a couple of years, it is easy to get into the routine popularly called the “rat race”, where you get paid, spend the money, eagerly wait for the next paycheck which you eagerly spend, and the cycle continues. With time, it gets so automatic that you hardly spend time evaluating your priorities to see if they are an accurate reflection of your life situation.

People who budget are not immune to this either.

I have fallen into the trap of automated earning, saving and spending so many times.  This story of a 25 year old who has prioritized his  retirement prompted me to analyze my finances, and I was quite surprised to realize that my real priorities were quite different from what I perceived them to be.

According to my budget and spending, my real financial priorities are as follows:

1. Living: Ahem! A good 33% of my net income is dedicated to sustaining my lifestyle, that is paying bills, buying food, fueling the car, having fun etc. I was actually pleasantly surprised by this, I suffer from “lifestyle guilt”, the feeling that I am spending too much money “existing”, and not enough in activities that add value.

2. Retirement: I have an employer sponsored pension plan where I contribute 5% of my gross income and my employer matches it. The total saving here comes to 10% of my gross pay which translates to 20% of my net pay. This is the recommended safety net by most personal finance experts. It doesn’t attract much in returns (6-10%), but since contributions are tax allowable, I get to save on income tax. The other advantage is that this money is deducted at source, meaning I don’t get tempted to spend it.

3. Debt repayment: About 21% of my net pay goes into debt repayment. I have two loans, one from my murky past, and a recent one which I took for purposes of investing, though it is yet to start paying off.My spending on debt is higher than I thought it was, which was both surprising and disappointing because a key aim in my life plan is “debt free living”. Once more, that quarterly review is priceless!

4. Saving for Investment: I save about 20% for investments (SACCO, Chama etc), and for one off expenses such as medical and car insurance. The portion that goes into SACCOs and Chama is priceless because this is money I cannot easily access.

The rest of the money goes into giving, and other miscellaneous expenses.

This exercise taught me one thing; having a budget is no guarantee that your priorities are in line. It is important to keep reviewing your budget and actual spending to ensure that your percentages are lining up according to your priorities. For me, reducing that loan is now an immediate priority. Through this process, I also realized that most of my savings are not accessible, which could be risky should I need the money urgently, so I am prioritizing an emergency fund.

Over to you: What are your real financial priorities (as reflected by your spending), and do they agree with your perceived priorities?