Why is refocusing so important? There are a couple of reasons why you need to do it.
Refocus Your Finite Resources
With your motivations and priorities in mind, it’s time to take a look at the resources you have to hand. Obviously we’re talking about financial resources here, but also your time, energy and skills are valuable resources. With your finances, we’re talking about how you budget, how you save and invest, and when you’re in a position to, how you give.
For example, if you’re wanting to provide private education for your kids, that will impact how you budget and save. If you want to help them with a house deposit one day, then that also will inform things, because the timescale is longer, and the amounts going towards that goal are likely to be smaller, leaving more to be put towards other priorities.
If your priority is to be present for your family, then it doesn’t seem to chime with taking that promotion which means a ton more travel and you being away from home 40% of the time. You can’t buy time, so don’t think that the extra money that comes with the promotion will somehow compensate for you being away.
This is why it’s so hard for me to answer when a stranger from the internet writes a lovely email detailing how they have been helped by my content over the years, and then asks for advice on their specific situation.
It’s also why professional financial planners have jobs and are still very much in demand. We can advise, but really only you can make the decisions needed to put your resources to best use according to your personal priorities.
Pay Yourself First
In establishing any kind of balance in our financial lives, one thing is immutable – we must pay ourselves first. When it comes to looking after number one, there’s no need for balance – the scales should instead be tipped entirely in our own favour.
Practically this means paying off bad debt as soon as possible. I still include this in paying yourself first because it is making your own financial situation better, as long as it is paying OFF the bad debt, and not just servicing it.
After that, it’s about the first line on your budget being saving for the future BEFORE you eat, pay your bills, get to work – put money away for your future. Otherwise, you’ll simply never move forward.
I’m often asked about balancing investing for the future with paying off debt. In the vast majority of cases, I would say that you should throw everything at your debt first, get rid of it entirely before you start investing at all.
This excludes joining your company pension scheme of course. But often someone will write in and say “I have £500pm ‘to spare’ – I have £20,000 on credit cards but I’m really wary of missing out on the Bitcoin opportunity or I want to buy the dip in the markets.”
I do understand. Investing is the sexy part of personal finance. Getting ‘Back to Zero’ as Jonathan from ChooseFI puts it, seems less rewarding. Far better to have a clean slate, a decent emergency fund in hand, so that you can truly focus on your wealth-building goals.
To start investing while simultaneously paying down bad debt (note this excludes your mortgage) seems to me like trying to run a marathon with your shoelaces tied together; you’re really not going to get into your stride. There’s no balance to watch out for here. Either you’re paying yourself first or you’re not.
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