Quick — can you list your top financial priorities?

My top priorities (aside from basic living expenses) are building a house and travel. Those are the two things I daydream about the most, and the two things I try to keep in mind when I'm deciding whether I really need all 10 “hard-to-find” books from the used book store or whether I'm overspending on, say, a $100-compost bin, when there's a cheaper alternative (<—My husband and I built one of those this weekend!).

When we were paying off debt, however, we had a different set of priorities. After the bare necessities, there was paying off the credit cards, then paying off the car, and finally a fully-funded emergency fund. (As I've mentioned before, we didn't start with the mini-emergency fund, which is the best way to go — we were still learning about money and fumbling our way through debt repayment.)

Recently I realized that establishing financial priorities — really defining them and creating ways to keep them in the forefront — is what got us out of debt and has helped us to save up for extras like vacations and building a house. There's no point in scrimping and saving if you don't know what you want to do with the money — whether it's a cushy retirement, owning your home free-and-clear, helping your kids pay for college, or traveling to Barcelona.

Defining Priorities Improves Chances of Success

Your priorities are your own, but defining them for yourself and your family is likely to increase your odds of success, especially if you tie them in with big-picture goals. A study on spending habits and goals found that keeping the big-picture reasons in mind improves your chances of achieving your goals. From The Journal of Consumer Research:

People become more close-minded when they focus on logistics, and less likely to take advantage of unexpected ways they can move closer to their goals. But people who focused on the abstract reasons were able to spontaneously take advantage of ways to turn their dreams into reality.

Planning is important, no doubt. You can't daydream about a trip to Spain for months without taking the smaller, concrete steps to save the money for the trip. But the study found that to turbo-boost your planning, you have to think abstractly, keep an open mind, and remind yourself of why you are working toward the goal. So, what are your priorities?

Define Your Financial Priorities

If you've never laid out a plan of how you want your money to work for you, it's time to change that! I advocate making them concrete with paper and pen (of course a computer document is fine, too).

Let's say you are in the zeroth stage of personal finance. You don't have any savings, you live paycheck-to-paycheck, and you're just becoming aware that this lifestyle can't continue without dire consequences. Maybe you want to buy a house, but saving a down-payment seems impossible. First, you have to address your debt and spending habits. Your priorities might look like the following:

Big picture goal: Buying a house