This is a series written for those who are struggling mightily with their finances and tough decisions are being made about who will be paid and who will not be paid. It is my hope that this series will provide practical steps that can be taken to walk out of this situation and into financial freedom.
Part 3 Prioritize
When the financial sky is falling down and the walls are closing in on you, it is imperative that spending is prioritized. Here is my suggested order of priority for spending when there just is not enough to pay everything.
- Housing Must take care of the mortgage and utilities first. Now if the mortgage payment has run out of control and it is 60% of one's take home pay, then it is high time that the house be sold or income be tripled within a couple of months.
- Food I am going to eat before one single bill is paid! We must be able to eat. I am not talking about Olive Garden or fast food. I am talking about groceries bought with coupons and much attention to frugality.
- Transportation If transportation is required to produce income, then it is imperative that the vehicle payments, insurance, taxes, gasoline, and maintenance be funded.
- Back Taxes Owing the government back taxes is a terrible thing, and it must be addressed. I would rather owe anyone besides owing Uncle Sam!
- Secured Debts If there is additional money remaining after Housing, Food, and Transportation are taken care of, it is time to pay the secured debt payments. This is debt where the lender can come take something – like a car, boat, motorcycle, tractor, etc. If the lender repossesses the item, they will sell it at a wholesale auction and come after you for the difference.
- Family & Friends Debts If you owe family and friends and you still have some money left, it is essential to pay on debts owed to family and friends. Unpaid debts to family and friends has been the cause of untold relationship issues since time began. Avoid this!
- Unsecured Debts It is time to address the unsecured debts. Credit cards, student loans, signature loans, etc. One thing to note is that unsecured debt holders will be screaming and hollering the loudest because there is nothing they can come take from you. As a result, they will try to play upon your emotions to get you to pay them before you pay anyone else. And it works! I have met with a lot of people who have kept their credit cards current while letting the house payments fall behind. Not good!
Go back to the spending plan you have prepared and ensure that your priorities are in order.