CFO of Life #65: Mastering Your Money: The Payment Priority Pyramid

In this day and age, advertisements about discounts and deals are all around us. Feeding us with a constant stream of interesting gadgets, new technology or the latest season’s clothing. And all that pushes us towards buying more and more, which eventually gets some of us in financial trouble… big trouble. But that trouble does not come from the purchase, it comes from the credit card that we used and forgot to pay for. From the ‘buy now, pay later’ temptation that we went for but we shouldn’t have on second thought. It’s all the unnecessary purchases and sometimes the bad terms that come with them. Now, the idea of this week’s article is to show you what your purchasing and budgeting pyramid should look like and how you should adjust it over time.

Today we will look at: 1. Who should consider setting up a Payment Priority Pyramid (PPP)?

2. What is included in the PPP?

3. Why do you need your own PPP?

4. How to rebalance your PPP and get back on track?

So, who should consider creating their Personal Payment Pyramid? Well, everyone should have an idea of what their priorities are and what drives them. And the best way to present this is not using 1000 words, but maybe with a picture:

This clearly shows you the different priority levels and roughly what they consist of.?

It is important to note that the higher the level is, the more future-oriented it is. So, while Level 1 focuses on things that are happening today, Level 5 is focused on things that are going to impact your life in 5 years’ time.

But, if you want, you can always flip the pyramid and make it so the top level, or the “tip”, is the most important and the “closest priority” to think about. The base could be the things you do for the long term that will build your legacy.

What is included in each "bucket" PPP?

That all depends on you. But you should make it easy and intuitive, so you don't easily get tempted to steer away from it. At the same time, it should be flexible enough to accommodate for any short or long-term change in your priorities.

Therefore, each item should be close enough to the next two buckets. And it should simultaneously work perfectly where it is.

Let me give you an example:

For me, Level 1 is everything I do on a day-to-day basis and Level 2 is what I make as a decision for the month/year. My highest level priority is to make sure that I have paid myself first and dedicated money towards my investments and my savings.

At the same time, paying off my debt is in Level 2. It is still an important item for my personal finances, but because my debt has a much lower interest rate than the long-term interest, I can get on with my investments (not financial advice).

In any situation where those two flip and the interest rate on my loan becomes higher than expected, then I can easily make it my Level 1 priority and quickly get it paid off.

Hopefully, this shows you how to set up the priority levels and the distribution of each item within them.?

Why do you need your own PPP?

As much as I want to say you need it to succeed on your personal finance journey, it is something good to have. It will help you make more informed choices on what to buy and decide if that "deal" is worth it!?

Regardless of that, building your Payment Priority Pyramid (PPP) is a great exercise to rebalance your priorities and see how they fit into your own long-term plans.

It will show you any potential points of weakness or any items that you should have been focusing on, but for one or another reason you missed.

Or, it might have been a few years since you last worked on setting your financial priorities. Then this tool can serve as your guide to succeed with this exercise.

How to rebalance your PPP and get back on track?

Well, that is up to you, as it depends on what your goal is. But let me give you some pointers:

-Review your current PPP and find what and why is not working out

-Choose the new "themes" of each level and think if you need to change them

-Set up the goal and optimise towards it, not towards what is easiest to do

-Make sure you do it in a way that is not too strict and that you can follow, so you don't just set it up and forget about it

And I know, this is not the most fascinating concept. It is not the one thing that you have to do to get rich in the next 6 months.?

But it is another tool that will make your life easier in the long term. Another tool you can learn from when you need a bit more stability for your personal finances. I think that if you take your time and go through the exercise periodically, you will definitely benefit from it!?

Thank you for reading! All comments and topic suggestions are highly appreciated. Post #65 in the series CFO of Life #si #personalfinance #CFOofLife