In the previous post, we talked about using our own definition of wealth to assess wether our spending habits align with our stated life goals. In this post, we address the questions that help us see if there is a mismatch in our stated goals and what to do about it.
To start to build wealth, you need to ask yourself a number of questions.
What does wealth mean to you in practical terms? Our idea tends to lean towards having big, flashy stuff and large amounts of money thereby making the dream appear hard to achieve. But when we dig deeper, we find that the things that we value aren’t necessarily those things and once we change our definition of wealth to reflect our values and needs, becoming wealthy on our own terms isn’t so unattainable. Please note, I am in no way suggesting that you cut down your dreams – far from it. But I am suggesting that many of us are chasing dreams that aren’t ours and making ourselves hugely unhappy in the process.
Do you currently have things (assets) that generate income for you? Your car or your house is not an income generating asset unless your car is used as a taxi or your house is rented out.
What are you current financial priorities? How do they align with your wealth building goals? If you are spending more on a lot of things and experiences but not on income generating assets, then your definition of wealth is not having income from assets. Your definition might be having things and experiences. That may well be what you want it to be. In which case, you’re doing alright unless you are using debt to pay for those things, which isn’t alright.
So, what are financial priorities?
If I look at your statement over the course of three months, I am bound to see a trend in what you spend your money on. Those are your financial priorities. Even if you claim otherwise, what you are spending your money on clearly is your priority. They don’t always line up with what your priorities should be however, and that is where the disconnect comes in. Typically, our financial priorities should lean towards things that have dire consequences if we don’t attend to them. For example, rent or mortgage. If you don’t make either of those payments, you soon won’t have a home to live in. Another example is medications for recurring illnesses – clearly this is important. And to add another wrinkle to the equation, there is a hierarchy of priorities. In debt management, we address the issue of priority vs non-priority debts. At Money Dialogue, we’ve created a hierarchy of Priority, Essential and Nonessential spending aka our PEN spending hierarchy. What’s the PEN spending hierarchy? I’m glad you asked…
In our final post in this series, we’ll talk more about the PEN spending hierarchy. See you next post…