Liz Koh: Track your spending to know your priorities

Manage your money

Juggling these areas is where the art of money management lies. It is human nature to always want more than we have. Without that drive for more, economic development would probably come to a standstill and our lives would be much simpler.

The combination of insatiable needs and limited resources means we have to make choices.

To determine your priorities it is first necessary to understand not what you spend but why.

The motivation to spend comes from many different sources ranging from survival to security, pleasure to philanthropy. Money has a different purpose for everybody.

Of course, the way in which we would like to be able to spend money often doesn't match up with how we actually spend it or even how we think we spend it.

In the words of James W. Frick, "Don't tell me where your priorities are, show me where you spend your money and I will tell you what they are."

For example, if you say travel is a high priority but most of your savings goes on fashion or gadgets, there is clearly a disconnect between your actual priorities and your desired priorities.

In that case, something has to change. One way of forcing change is to think about where you would spend your money if you had no bills to pay. Then start working towards that as a goal.

Paying for the necessities of life has to be a top priority and of course needs and wants should not be confused.

Once the necessities are covered, an emergency fund and debt reduction rank next, followed by goals relating to our stated priorities for the enjoyment of life.

Juggling these areas is where the art of money management lies.

Sometimes it takes a dark situation such as a life-threatening illness to discover where our true priorities lie.

* Liz Koh is an authorised financial adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free by calling 0800 273 847. For free e-books see moneymax.co.nz and moneymaxcoach.com.