How To Prioritize Your Monthly Payments

Creating a payment priority list has been another critical step in me attaining and maintaining financial stability.  Because money was limited, I needed to ensure that I had money to pay for my primary expenses (aka needs) for that month.

So, when I sat down to make my monthly budget each month, I first allocated money to my primary expenses that immediately contributed to my standard of living such as grocery bill, utilities, rent/mortgage, and clothing.  Once my primary expenses were covered, I then allocated money in my budget to my secondary expenses.

Primary Expenses

The first things you should do with your money is tithe/give 10%, contribute to your emergency fund, and then purchase groceries.  Food and household necessities such as tissue, soap, and laundry detergent are most important.  Set money aside at the beginning of each month exclusively for them.

Next, purchase clothing. Clothing is another necessity in life because it protects your body and keeps you warm in the winter months.  If you are in need of a new pair of shoes or pants for work, purchase them but don’t go overboard. You are only buying what you NEED in this phase of your financial plan, not what you want.  If you have enough clothing in your closet to get by, make it work!  It’s a temporary sacrifice for a long-term reward!

Once you have fed and clothed yourself and your family, move on to paying the next set of expenses – your housing expenses.  Housing expenses include your rent or mortgage, water bill, gas bill, and electricity bill.  You may include your cable bill in this category.  However, if you are truly strapped for cash, you need to keep your priorities in check by temporarily living without cable and a cell phone.  It may be inconvenient, but it’s doable.

Lastly, you should set aside money for transportation.  If you own a car, you should set aside money each month for gas.  If you take public transportation, you should set aside money for your bus pass and transfers.  Separating money for transportation is important because it is the way you get to and from work, earn money to support you family, and possibly how you get your children to and from daycare or school.

Secondary Expenses

Once you have budgeted your necessities for the entire month, the remainder of your current month’s income should be used to pay the minimum payments on your other financial obligations.  I recommend pay them in the order of importance for you and your family.

• Insurances (Auto, Health, Life, Renters, Homeowners)
• Auto Loan
• Childcare
• Student Loan
• Personal Loan
• Medical Bill(s)
• Credit Card(s)
• Additional Charitable Giving 

Luxury Expenses

Luxury expenses are those that you do not need, but you want as you are creating a standard of living for yourself.  Large cable packages, large cell phone packages, gym memberships, and dining out are all luxury expenses that can be temporarily removed from your life so you don’t prolong the process of attaining financial stability.  

If you do wish to keep them, they should be allocated last in your budget and paid for after all primary and secondary expenses are paid.  But remember, this money can be used to get caught up on past-due balances or building your emergency fund to $2,000.

Tara’s Tip:  Do not begin to pay off debt until you have achieved financial stability.    Each month, pay for all of your primary expenses, make minimum payments on your secondary expenses, and then building up a small emergency fund.  When you have overcome living paycheck-to-paycheck and are financially stable, you will be in a better position to pay off debt.  You do not want to place yourself in a position where you have paid off a debt but you have little to no money for a primary expense such as groceries or gas for your car.  

Download your Payment Prioritization Worksheet now.  Then list your primary, secondary, and luxury expenses in the order in which you will pay them each month.

by Tara Jones-Williamson | 2 Comments