4 Tips for Prioritizing Your Monthly Payments When Creating a Budget
Budget
When it comes to achieving financial success, a budget is a necessity. A budget will categorize your priorities when it comes to using the money you make.
Preparing before the income rolls in is key to making sure that you get ahead financially in the long run.
Pay Down Your Debt
Few priorities will pay off as much as paying off high-interest debt. Credit cards can provide some pretty impressive rewards for those who pay off their bills in full each month, but they also come with high-interest rates.
If you’ve fallen into credit card debt, you’ll want to pay off this debt as soon as possible.
Every extra dollar that you can pay toward your debt will provide a return equal to your interest rate. Few investments will pay off as well.
Pay Yourself
If you’ve paid off your high-interest debt, many financial advisors recommend making yourself your primary creditor.
Paying every other bill first will usually ensure that you have no money available to put toward your long-term financial stability.
You cannot save money if you have no money left. When paying yourself first, you’ll want to focus on building an emergency fund before focusing on long-term savings.
An emergency fund is key to making sure that you avoid going into debt.
Once you have three to six months of expenses saved, you’ll want to start putting as much as possible into retirement funds.
Pay Fixed Expenses
After paying yourself, you’ll want to focus on paying your fixed costs.
These costs would include your shelter, utilities, transportation, and insurance. Fixed costs vary little from one month to the next, but they allow you to have a roof over your head and get to and from work.
Failing to pay these bills could quite literally put you out on the street.
Attempting to negotiate these expenses with your insurance or internet provider could help you save money and allow you to put more toward other priorities.
Pay For Variable Expenses
Food and entertainment expenses can vary widely from month to month. They should also be your last priority.
Food is a necessity of life. However, you have control over how much you spend.
You could eat rice and ramen for a month and spend very little, or you could purchase filet mignon at a restaurant every day and spend more than $1,000 in a month.
You can take out free books from the library, or you can choose to go to movies every weekend.
That’s why this category should be your last priority. You actually have the most control in this area.
Those who fail to plan will likely fail in general. Prioritizing where your paycheck goes can help you achieve your goals.
Paying off your debt and paying yourself first will help you get ahead with your finances.
Category: Family Finances
