A Quick Guide to Prioritizing Income and Expenses
While we have seen some decrease in the costs of consumer goods in the first part of 2024, the consumer price index is still on the rise (BLS, 2024). This means that goods and services still cost more now than they did 12 months ago. Prioritizing expenses is crucial for managing your finances effectively and ensuring that you meet your essential financial obligations. Here are ten tips to help prioritize bills:
Create a Plan for Money:
Develop a comprehensive budget outlining your monthly income and expenses. This will provide a clear picture of your financial situation and help you allocate funds appropriately. The plan should be flexible and it’s good to revisit it on a regular basis.
Identify Essential Expenses:
Distinguish between essential (needs) and non-essential (wants) expenses. Essential expenses include housing costs, utilities, groceries, and debt payments. Non-essential bills may include subscriptions and entertainment expenses. One area helpful to review are bank statements and credit card statements. This is where you may find automatic payments you’ve set up for things you might not use. These might include fitness memberships, genealogy sites, gaming services, music services, credit monitoring, online newspaper or magazines, several streaming services, food delivery, etc. There may be many hidden expenses on statements so reviewing them can help reduce spending.
Prioritize Housing Costs:
Your rent or mortgage payment will usually be a top priority. Failure to pay housing costs can have serious consequences, such as eviction or foreclosure. Allocate funds for rent or mortgage payments first.
Utilities and Basic Necessities:
Prioritize essential utilities such as electricity, water, and heating. Ensure you allocate enough funds for groceries and other basic necessities to sustain yourself and your family. If necessary, seek food and utility assistance in your area. That is often as simple as calling 211, a service that provides referrals to a network of organizations for financial assistance and social services programs free of charge.
Address High-Interest Debt:
If you have high-interest debt, consider prioritizing payments on those debts to avoid accruing additional interest. This may include credit cards or payday loans. This is an area where a credit counseling agency like, American Financial Solutions, can help bring those debts under control using a debt management plan (DMP).
Communicate with Creditors:
If you are facing financial difficulties, communicate with your creditors. Many companies are willing to work with you to establish a temporary payment plan or offer assistance during challenging times. This may include deferring payments, changing payment due dates, or even allowing someone to skip one payment.
Maintain essential insurance coverage, such as health and auto insurance. These payments contribute to your long-term financial security and can protect you from significant unexpected expenses.
Minimum Payments on Non-Essential Debt:
Non-essential debts are those things that we have an obligation to pay, but if we do not pay them, it may take the creditor time to take any action against us. For example, if I do not pay my car payment, the creditor may repossess my vehicle (this is essential debt). If I do not pay my credit card, the creditor must take extra steps to collect that unpaid debt. If you have non-essential debts, focus on making at least the minimum payments to avoid penalties and protect your credit score. Once essential bills are covered, allocate remaining funds to non-essential debts.
Allocate a portion of your budget to building or replenishing an emergency fund. Having savings can provide a financial buffer during unexpected situations and help you avoid falling into a cycle of debt.
Review and Adjust Regularly:
Regularly review your budget and financial situation. Adjust your priorities based on changes in income, expenses, or financial goals. Flexibility is key to effective financial management.
Remember, these tips are general guidelines, and your specific situation may require adjustments. If you're facing financial challenges, seeking advice from a financial counselor can provide personalized assistance based on your unique circumstances. Call us today!
Published Feb 12, 2024.