If you believe that the reason you earn money is to afford all your expenses, then you’ll never get over the bad habit of spending. It’s not wrong to buy yourself simple pleasures using hard-earned cash. However, you also need to learn on saving up money for important matters or investing in long-term goals. This way, you can be sure that every penny you earn will be spent wisely.

The key to setting up your goals in spending is identifying specific objectives. This marks your focus in earning money, living frugally, or spending it luxuriously once in a while.

Your objectives will help you transcend conflicts brought by impulsiveness and greed. Furthermore, your objectives should include a time frame, so that you can experience the rewards of frugal living and wise spending.

To help you set up your objectives, you need to go through the hierarchy of how you are to spend your money wisely.

Tier 1. Emergency Expenses

For obvious reasons, most emergency expenses are unexpected. At times, this could even be quite a large amount. In this case, allot a percentage of your income for emergency savings. Some say it should be 10-20%, but it depends on how much you earn or on your lifestyle.

Tier 2. Long-Term Goals

Everyone will reach old age. The question is, do you want to age with no money to support you or retire when you can barely function at work? Your long-term goal is your retirement savings.

You can either open up an IRA account or opt for automatic deduction from your checking account into your IRA. You can always choose other available options from your bank, as long as you allot at least 15% of your income to retirement savings.

Tier 3. Medium-Term Goals

Medium-term goals include buying a house, a car, a travel package to other countries, and anything that you want and need ONE AT A TIME.

It also includes the settlement of your debt agreements. If you have pending debts, business loans, or credit card loans, then you can prioritize them before your long-term goal. However, never neglect to save for your retirement savings.

Tier 4. Short-Term Goals

Short-term goals include car maintenance, house interiors, home improvement, and extra training for certification purposes. You will need to assess your short-term goals, before committing to them. As much as possible, choose goals that will open you up to better opportunities, such as spending minor expenses for a garage sale, taking up training courses, etc.

Tier 5. Personal Development

If you have attained all the goals you set, then it’s time to use your money to develop yourself and sustain the accomplishment of goals. You can either use your money as capital for a business venture or participate in the stock market.

Decide for yourself: Do you want more financial freedom? Following this goal hierarchy will be your first step towards a better and healthier spending habit.

Rosariyo Flowers is a freelance writer for Debtconsolidation.com.au. The company provides assistance to some personal financial matters such as dealing with bad credit loans and handling bankruptcy issues.

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