There are very few people in this world who have unlimited money to spend and even rich people have priorities when spending their money, or so I have been told. The rest of us with lower sources of income are stuck with the day to day decisions of where we are going to spend our money, or maybe save for a future goal. There is no doubt that necessities such as food, accommodation and power should be number one in terms of priority, so why is it that so many of us don’t prioritise these first? Being able to prioritise our spending correctly is the first step in building financial capability.
I recently read a report on how priority setting is handled by the World Health Organisation (WHO) that stated “…all methods of priority setting have limitations and that different methods need to be used depending on the particular circumstances”. The report went on to state that, broadly speaking, when setting priorities we can use a technical method, an interpretive method, or (as WHO decided to do) a combination of both. The technical method involves making logical well analysed decisions based on accurate, complete and measurable information. The Interpretive method involves the use of subjective judgement to decide priorities based on the decision maker’s experience, values and goals.
Most people use a combination of both but many people that come to our budget service tend to lean heavily towards the second approach when setting their priorities for spending. They will explain in great detail the process that they went through to justify not paying their rent or power or even cutting back on food but few have taken the time to get good data and put it together so they are able to make informed decisions that stand up to scrutiny. Doing this is one of the most important services the budget service can offer you. We’ll break it all down and as long as the data you provide us is accurate, complete and measurable we can provide you with the first part of your priority setting for spending your money. Of course all of the budgets we provide involve the client’s input and therefore our clients’ subjective judgements as well. However the client’s priority setting and decision making is better informed. Take the time to consider how you set your spending priorities because that sets the base for how you control your money.
- Pakanui Tuhura (Manager – Rotorua Budget Advisory Service Inc)