This is a series written for those who are struggling mightily with their finances and tough decision are being made about who will and 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 ONE Evaluate
Why are you stuck? It’s important to understand why and evaluate the root cause of the situation.
PART TWO Plan!
Planned money accomplishes far more than unplanned money. There is so much power in a written spending plan – a budget!
PART THREE Prioritize
When you have an extremely limited amount of funds, it is important to remember the priorities. I have met a lot of people who have been tricked, guilted and shamed by credit card companies into paying the credit card bill instead of their house payment.
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/Prescription Medicine – 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 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 have 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 payment fall behind. Not good!
Who is the manager of YOUR money? It should be YOU! Not your creditors! YOU choose where it goes.
Go back to your spending plan you have prepared and ensure your priorities are in order.
Even if you don’t have enough money to pay all of the bills, go ahead and put all of the bills into your spending plan. This is a KEY step! You need to clearly understand how large the gap is between you INCOME and your OUTGO. We will address this in Part Four.