Acknowledging that you need to set priorities in handling your finance is the first step! Most of us muddle and gamble through our financial lives, spending to meet the day-to-day expenses that dominate our attention. Unfortunately, that approach risks leaving your most important objectives unfulfilled and the more germane needs unattended.
Economic realities of our time makes it all the more important that we pay close attention to how much we make, what we end up spending it on and how much is left (savings) at the end of the day. In order to achieve your financial goals, you need to make them concrete, be disciplined and committed to them.
One of the basic principle of economics we learnt in school was drawing out a scale of preference when addressing your needs and wants. And as long as human life exists, this principle remains relevant, even though we poked fun at it in our school days.
Economics is not just a science one has to study in school or university. It has much more to offer. The majority of the economics concepts are applicable to our daily lives. Economics is a very complex science but there are basic and simple principles to life that it teaches. We face its concepts and processes every day in our life. It is important to understand its issues both in everyday and business deals, as they enhance efficient handling of scarce resource, and ensure we get more profit in business.
One of such concepts is the scale of preference. You can use it in planning an economy of a whole country, or just with one family or individual. What it basically means is setting of preferences or priorities. As the resources available to man are limited (income of most individuals fixed and/or never enough), people have to make choices. Thus, this concept is a list of unsatisfied wants, which are organized in the order of their importance for a particular person, family or nation. We can just say they are arranged by priority. The most pressing want usually comes first, while the least pressing one come the last. A choice(s) should be made, because desires might be various and they are numerous. Wants are endless and insatiable relative to resources; that’s why people have to prioritize. The most essential things are preferred as this principle informs. Their sales are usually much higher in the day to day markets.
A country and a person alike have to do some planning to survive. What is more important to you at a particular time: water or a pack of chewing gum; food or paid tv subscription; school fees or aso ebi; rent or car purchase; school wears and books for your children or an extra fancy suit for you; saving for a new business or saving for a vacation in Dubai; getting a new furniture or repairing and re-modelling the existing one etc.? For someone who is confronted with such economic questions, I guess the answers are pretty obvious. You can survive without new shoes, but you can hardly do without your daily bread.
Once you set up your priorities, you start planning for the income and expenditures accordingly. You set aside the major part of your budget to spend on food, shelter, water and other basic and pressing needs. Instead of spending it all on shopping. Things you need are more important than things you like. It works the same way in the larger economy, where nations are expected to cater for the basic needs of their citizens with the limited resources available, but more often than not are rather use to support the luxurious lifestyle of those managing such resources.
Write down a list of all the things that you’d need to feel secure, happy or fulfilled, based on your present income, first and foremost. And also on your projected income for the future. These can range from the weighty (getting out of debt) to the luxurious (family home you wish to own). As you write, try to define the goals as much as possible. Include your investment and saving goals too. Key is to set a realistic savings target for yourself for each income and stick to it religiously. Your investment focus should be in schemes and ventures that are safe, unspeculative in nature and recognized by proper regulatory bodies, chief of which is the Central Bank of Nigeria, and backed with proper documentation.
The advantages of setting financial priorities are many: for example, it allows effective and efficient application of rare or limited resources. With the help of it, everyone can compare his or her needs and opportunities and decide, what is more or less important.
With the help of such scale, all the priorities (either individuals or firms) are properly organized and set.
This issue also helps plain people to get maximum satisfaction from the limited resources. They understand, which ones are more pressing, and choose them taking all the benefits into consideration. At the same time, they sacrifice less urgent ones. Scale of preferences allows people to make the right decision, when it concerns the allocation of limited resources.
It gives an opportunity to make business more profitable too, because sellers and manufacturers can better understand the buyers’ needs.
If you are struggling to prioritize between two important goals, ask yourself: Will one of the goals benefit more people than the other? Which goal will cause the greater harm if it is deferred?
Revisit the list in a few years. As the years go by, your priorities will change and also your income. So it’s good to re-examine your goals periodically. And of course, whenever you’ve completed one, you can bring another to the forefront.