Financial independence, step 2: Know your priorities
Bankrate.com

Control of your financial life gives you one important thing: freedom. But freedom to do what? Well, that's up to you.

Before you start to organize your finances, you have to know what you want your money to do for you. You need to know your destination before you can map out the route.

First, determine your priorities by asking yourself a few questions (see box).

Write your answers down in a notebook you've designated for this purpose. If you keep your life's plan in your head, you won't be as focused on it. Writing them down brings them closer to being reality.

You'll discover your priorities within these written-down dreams. Take the time to mull them over. Number them in order of importance and then try rearranging them. Sleep on it, then go with your heart. Only you can determine what you want out of life.

Allow your life's desires to create your money picture, rather than the other way around. Your priorities ought to determine how you earn and spend money. For example, if surfing is your passion, then a low-stress job that gets you out to the beach by 3 p.m. and also affords you an annual trip to Hawaii would be gnarly, dude. Or if reading is your top priority, you may want to become a bookstore owner and shop for a house with lots of built-in bookshelves.

Once you know your priorities, it's a snap to set goals
It's important to have different levels of financial goals to achieve different stages of your dreams. These are short-, mid-, and long-term goals.

Strive to balance these goals. Most of us neglect retirement planning in favor of weekend planning. But it is equally vital to enjoy daily life while setting aside money for the bigger events.

Review your goals and priorities regularly
Daily review would be ideal. This will keep you focused and help you make financial decisions that will lead you toward these goals and support these priorities.

It's important to remember also that these priorities are not carved in stone. They may change during your life. Goals will change with them. The priorities you determine this month may not be the same ones that you have 10 years from now. Review your goals periodically to see if they still fit your priorities. Be willing to be flexible -- as long as you are remaining honest to your values.

Once you've determined your priorities and goals, it's time to proceed to Step 3.

• Introduction -- Financial independence
• Step 1 -- Assess your financial situation
• Step 2 -- Know your priorities
• Step 3 -- Take control of your financial life
• Step 4 -- Be smart about your credit and debt
• Step 5 -- Use your money to make money

Updated: June 13, 2002