Have you ever wondered how to prioritize spending? Maybe you are low on cash and can’t decide whether you should pay the cable bill or the electric bill. Maybe you have a surplus of cash and can’t decide what things you’ve been saving for or needing should be purchased first. Whatever the reason is, I decided to create a list of what should be paid first, and what can wait.
Prioritizing is one of those things that many people struggle with, and we don’t even realize it. If you’re someone who feels indecisive a lot, chances are you’re not realizing what is really important and needs your attention immediately versus the things that could wait or don’t necessarily have a lot of importance. Its not surprising this isn’t something that comes naturally – when you think of all of the distractions we face in any given day it’s no wonder its hard to tell heads from tails.
I got the idea for this post the other day when my husband was ready to rush out the door to go buy the latest Madden Xbox360 game. I like xbox, I like video games. But the game costs about $60. And I don’t think $60 is a lot of money to pay – but the idea of buying it bothered me because it wasn’t something that was absolutely important. There’s plenty of other things on my list of things we need to buy/should buy – and I’d rather see the $60 go towards those. So while they were disappointed, I think I may have convinced them it would be worth it to wait until the Black Friday sales when we could probably pick it up for $30 (who knows? Maybe even less!) instead.
Sometimes, to get the things you want, you have to wait. And by nature, most of us hate to wait for anything. But, it all comes back to priorities. Things like getting gravel for our driveway so we don’t get stuck in the inevitable mud and snow seem like a better way to spend the money to me While video games are fun, the long term usefulness doesn’t always justify the expense.
Before you spend your money on anything, you should have a clear idea of how to prioritize it. Everybody’s list is going to be different, because clearly you’re going to have and need different things than I do. But if you use my list below as a guide, you’ll be able to come up with a list of your own and it will help you with reaching your savings goals.
Here’s how I prioritize my spendings:
You don’t want to go without electricity or gas or water because you didn’t pay it on time or at all. There are a lot of things you can do to save money on utilities and cut down the costs or find alternative solutions such as solar power - but all in all, these are an expense you have to pay. For some, having these things isn’t just a convenience – it’s a matter of safety. If you can’t pay your utilities, call the company and work something out or apply for programs that will help you reduce your bills. I don’t believe in welfare a single bit, but if it’s available and you qualify, you’re an idiot if you don’t take advantage of it.
2. Debts With Collateral:
If you have a car loan, chances are if you don’t pay it on time, mean people come in the middle of the night and repossess your car. I have never had a car repossessed, but people I know have. Let me tell you, it is one the scariest things to wake up in the morning and realize the car is gone! Same thing goes with your house payment if you own a house. If you fall behind on a mortgage payment, it can get really hard to get back in the swing of things and before long you’ll be faced with foreclosure notices.
If you managed to keep your car from being repossessed, now you have the problem of it needing to be insured. Not only that, but in most states you are required by law to carry insurance. So, this is one I also always pay no matter what. You don’t have to have a huge insurance policy – but if you have one, you should pay it. If it’s too much, think about comparison shopping or finding a better plan that is more suitable for your budget. Keep in mind you don’t need all insurance (ie: I’m against dental and vision insurance) – so you might want to reconsider some plans if you have some that you never need or wouldn’t be a total disaster if you had to pay out of pocket for.
4. Gas for the Car:
You’re paying the car payment and the insurance – if you can’t afford gas, you shouldn’t probably have a car. If money’s tight though, limit your driving as much as possible – I usually go at least one week if not two on a single tank of gas, depending on what’s going on. (Of course, I’m fortunate enough to work from home also, and if I didn’t have to drive my kids to school I probably would use even less!)
It probably seems strange that I would put groceries down here at 4th on the list. Isn’t food a basic need for survival? I put this 4th because:
1. You can always beg for food somewhere somehow (hey mom, dad, next door neighbor, long lost cousin twice removed, we’re coming over for dinner!
2. Food programs exist in this country so you should never go hungry (look up local food banks in your area)
3. Chances are you already have something you could eat sitting in your pantry, even if it is a box of something you bought on a whim and then decided you’d probably never ever be in the mood to actually make and eat it.
4. You would probably spend too much on food than you absolutely had to if you really were in a starving situation.
So, yes, that’s why groceries are down on this list. Now, grocery lists should probably be prioritized in their own sense, because most of us are way overspending on food, I know I do it myself even sometimes without realizing it. If you’re in dire straits, buy a gallon of milk, a loaf of whole grain bread, a jar of peanut butter, a dozen of eggs, and a bag of potatoes. Meal planning is a better way to go, but that’s what you can buy for $20 at the grocery store. I also lump TP, baby wipes, and diapers in this category, too. Because trust me, those are three things you don’t ever want to be without! Other basic items like soap, toothpaste, etc. can also go into this category.
6. Health Needs:
Don’t put off going to the doctor or the dentist just because the co-pay is too much or you don’t have the insurance. Most health problems will get worse if not treated, leaving you with bigger, more expensive, and even possibly life threatening problems if you let them wait. Usually these kinds of things don’t happen often – so I don’t worry about this too much. If I owe someone a million dollars because I get some wacko disease and they save my life or someone I love’s life – it was a million dollars well spent.
7. Household Needs:
This can range to everything from needing lightbulbs to gravel for your driveway as I mentioned earlier. Basically anything for your house that’s necessary – if you’ve got a leak in your roof, then you better fix it before it causes bigger more costly problems.
9. Other Debts:
If you have credit card debt, student loans, or other debts you owe, then you’ll want to make sure you pay these because what will happen is they will start slapping you with high interest rates and late payment fees. That is not going to save you any money.
You have to start saving somewhere at some point if you’re going to ever really actually save money. I don’t care if you start with $1. I know $1 is nothing really anymore, but it’s a place to start. Stick it in your piggy bank and forget about it. If you have larger sums of money, like maybe a couple of hundred dollars, then put it into a low interest bearing account or somewhere else where it’s really a pain in the neck to access it. I love statement savings accounts – the kind where you can only get them by going into the bank with that little book that they stamp. (Yes, they really do still exist at most banks!) Don’t be tempted to just let the extra money sit in your checking account with the rest of your funds – you probably won’t be able to resist the urge to spend it on something you really, really want.
We all have our vices, and for some it will be a lot harder to put those vices way down on this list. If you’re one of those people addicted to coffee or like to drink beer or have some other quirky habit, you’re going to think these things are just as important, if not more important, than groceries. But, you really can live without them.
12. The Nice to Have’s
There are all things we think might be nice to have, but the truth is we probably don’t even really need them. For example, I was thinking last week it would be nice to have a new sweatshirt since the weather’s been cooling down and mine from last year is looking pretty ragged. But, I have other sweaters and shirts I can wear. I don’t like them nearly as much as I’d like a new one, but it will serve the most important purpose of keeping me warm.
13. The Absolutely Unnecessary
Personally, I don’t even buy anything from this category, but sometimes I know some people will. A good example of this is an HDTV. We have a television that works – so we certainly don’t need a new TV. And while it’d be nice to have, it being nice to have doesn’t justify the cost. So, that’s how it gets put under the absolutely unnecessary but still something we may want to buy someday.
So there you have it, a quick overview of how I prioritize my spending habits. You certainly don’t have to follow my way completely – after all, there is a good chance that you are in a different situation or have different circumstances than I do. The key is not how you prioritize it necessarily – but just that you do. When you have a list of priorities, it’s a lot easier to make sure that the important things get taken care of first and you’re not stuck in a situation of worrying about not being able to meet your basic needs.
How do you prioritize your spending? Do you think my way is a good way or is there something else I should consider? (Hey, while I’m good at saving money and not spending any, that doesn’t mean you don’t have something new to share with me!) I always welcome comments on all of my blogs – so don’t be shy and share your thoughts below.