Prioritizing Expenses
It can be tough to decide which bills and monthly expenses to pay first, especially if you're on a tight budget. Although it's important to try to make all of your monthly payments, it may not always be possible.
If you're struggling to decide which bills to pay first, these tips can help you make a wise choice.
Make a List of Your Expenses
Start by making a list of all the bills you pay each month and the amount you owe. Don't worry about listing these in any particular order, the point is to calculate the total cost.
Typical monthly expenses on this list should include the following:
- Housing
- Utilities
- Food
- Transportation
- Insurance
- Debt (student loans, credit card payments, etc.)
- Medical expenses
- Child care
Identify Your "Must Pay" Expenses
You probably havebills for some (or all) of the things on your monthly expense list, but you may not have enough money to payall of them. This is where prioritizing, or deciding what to pay first, comes in.
Paying for shelter should always be the first priority, so you continue to have a roof over your head. Ifyou pay for utilities, like heating and water, you may have a month or more to make your payment before having your service disconnected.
Your food budget is a great example of an expense that is both a priority and something that you can adjust if you have more pressing bills to pay. There are probably items on your grocery list that can beremovedto save money for other bills that month.
Go through each expense on your list and make a note of any you can delay payment on or change for a brief period. The expenses left are your "must pay" expenses for the month.
Pay Your Debts
Once you know your "must pay" monthly expenses, focus on paying any bills that could impact your credit, including debt from credit cards and loans. A record of late or missed payments could stop you from borrowing money or getting a place to live in the future, so it's a good idea to look at your credit report on a quarterly basis to get a full picture of all the money you've borrowed from lenders. Luckily, there are a number of websites that let you access your credit report for free.
Remember that some debts, like mortgages and car payments, are secured loans and are tied to your house or car. If you miss payments, your lender may eventually be forced to repossess these items. If you find that you don't have enough money left to make these payments after paying for your monthly expenses, contact your lender as soon as possible to negotiate a more affordable repayment plan.
Prioritizing bills and expenses in order of importance lets you meet basic needs, protect your credit, and lower your financial stress. This, in turn, allows you to focus on finding ways to cut costs or increase your income so you can pay all of your bills each month and even start saving for the future.
Tools to Help
Prioritizing Expenses Worksheet
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FAQs
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
What is the 50 30 20 rule? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
How do I prioritize my monthly bills? ›
Dollars and Sense: A Blueprint for Prioritizing Bills
- Food and Groceries. Ensuring you and your household have enough to eat is a fundamental necessity. ...
- Housing. Mortgage or rent payments should be the top priority to ensure you have a secure place to live. ...
- Housing Resources. ...
- Utilities.
How can you prioritize expenses in your budget?
- Track your income and expenses.
- Categorize your expenses by importance.
- Review your budget regularly and adjust accordingly.
- Set realistic and specific goals.
- Seek professional advice if needed.
- Here's what else to consider. Be the first to add your personal experience.
Allow up to 50% of your income for needs
- Groceries.
- Housing.
- Basic utilities.
- Transportation.
- Insurance.
- Minimum loan and credit card payments. Anything beyond the minimum goes into the savings and debt repayment category.
- Child care or other expenses you need so you can work.
The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.
Is the 50 30 20 rule outdated? ›
But amid ongoing inflation, the 50/30/20 method no longer feels feasible for families who say they're struggling to make ends meet. Financial experts agree — and some say it may be time to adjust the percentages accordingly, to 60/30/10.
What is the best way to organize all payments on a monthly basis? ›
8 Ways to Organize Your Bills
- Setting Up a Bill-Paying Station. ...
- Making a Master List of Monthly Bills. ...
- Using Automatic Payments When Appropriate. ...
- Putting a Bill Paying System in Place. ...
- Keeping Good Records. ...
- Designating a Family Bookkeeper. ...
- Using Budgeting Tools/Apps. ...
- Using the Cash Envelope Method.
Credit Cards and Unsecured Debts
Less important than necessities, insurance and work expenses is paying off unsecured debts. Unlike other more pressing bills, credit cards and similar debts can be deprioritized since they may not significantly impact your everyday life.
What are the four walls? ›
In a series of tweets, Ramsey suggested budgeting for food, utilities, shelter and transportation — in that specific order. “I call these budget categories the 'Four Walls. ' Focus on taking care of these FIRST, and in this specific order… especially if you're going through a tough financial season,” the tweet read.
Five Ways to Organize Your Finances
- Create a budget. Take a serious look at where your money goes. ...
- Track your spending. One of the easiest ways to keep your finances organized is to track your spending. ...
- Pay bills on time to avoid late fees. ...
- Keep joint accounts balanced. ...
- Set a savings goal.
Prioritizing Expenses
- Food. Food is the first priority for supporting your household.
- Medicine. Like food, if a family member needs essential medicine to sustain them then this should be a priority expense.
- Rent/Mortgage + Associated Costs. ...
- Utilities. ...
- Car Payments + Insurance. ...
- Jon-related Expenses. ...
- Child Support. ...
- Income Taxes.
Identify Your "Must Pay" Expenses
This is where prioritizing, or deciding what to pay first, comes in. Paying for shelter should always be the first priority, so you continue to have a roof over your head.
What is the 60 20 20 rule? ›
Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.
What is the 70 20 10 budget rule? ›
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
What is the 50 15 5 rule? ›
50 - Consider allocating no more than 50 percent of take-home pay to essential expenses. 15 - Try to save 15 percent of pretax income (including employer contributions) for retirement. 5 - Save for the unexpected by keeping 5 percent of take-home pay in short-term savings for unplanned expenses.
What is the disadvantage of the 50 30 20 rule? ›
It may not work for everyone. Depending on your income and expenses, the 50/30/20 rule may not be realistic for your individual financial situation. You may need to allocate a higher percentage to necessities or a lower percentage to wants in order to make ends meet. It doesn't account for irregular expenses.
What are the flaws of the 50 30 20 rule? ›
Here are some potential disadvantages of the 50 30 20 rule: Some people might need more than 50% of their income for needs: some individuals or families may have higher essential expenses.
Why is the 50 20 30 rule helpful? ›
The rule simplifies the process of saving and spending by categorising your budget into three main categories: needs, wants and savings. This can help you achieve financial security for your future needs while managing your current expenses effectively.
How to work out 50/30/20 rule? ›
A 50 30 20 budget divides your monthly income after tax into three clear areas.
- 50% of your income is used for needs.
- 30% is spent on any wants.
- 20% goes towards your savings.
