My seventh rule of budgeting: Prioritize and list items in order of priority!

by Nick on August 4, 2010

Prioritizing items in our budget helps my wife and me on tougher months.  When a month is tight we look at the bottom of the budget and know that those things are the least important things to us.  So we cut from there (Incidentally, the lowest thing on our budget happens to me my “slush” money – money that I can spend on whatever I want.  My wife’s “slush” money is second lowest.) 

Because before we even get to our budget we prioritize a little bit of savings over everything else, savings is at the top of our list – we do it even before we budget.  Once we get into our budget, at the top of our list are housing, some food (not restaurants) and some utilities.  Additional savings could be there too, depending on your preferences.  We’ve become better with budgeting and work very hard to reduce every category that savings comes right under our fixed housing costs, some utilities and food.

So let’s talk about the categories in the simple budget I talked about in my sixth rule of budgeting and how my wife and I prioritize them (after a few months of budgeting we got comfortable with some of our budgeting so some of these are broken out in ours (and we added the small “slush” funds for each of us)).

  1. Charity:  We have a regular charitable allocation at the top of our budget.  This is a fixed amount each month that we give to the same place.  The variable giving we budget for on a month-by-month basis.  If one of us wants to give, we talk about it and make sure we fit it in the budget.
  2. Savings: This is high priority for us.  We save before we get into the budget.  But in the budget it is after our fixed housing costs, some utilities (not cell phones for example) and food.
  3. Housing: This is at the top.  For us, making our housing payment is a must and we sacrifice other spending and some savings to live in an fairly nice and convenient area and home.  But we do stay within a strict budget amount and keep this between 20 and 25% of our after-tax income.
  4. Utilities: Some of these are right above housing (yes, above).  We are conservative with our budget, so we hope it would never come to this, but – to us – keeping the lights on is more important than keeping our monthly payment current.  We’re splitting hairs here, but that’s OK.  Other utilities, like cable and cell phones fall below housing.  We do get a little more detailed in our budget, but you don’t need to unless and until you’re comfortable.
  5. Food: Food is right below housing in our budget, but that was more because we wanted to keep housing with housing-related utilities.  Otherwise we would have put food above housing.  Why?  Because if push came to shove I would want to make sure my family had heat, food and water before I cared about making our housing payment.  Again – splitting hairs for us.  We separate restaurants and groceries, however.  Restaurants are below groceries.  And the restaurants budget amount is smaller.
  6. Transportation:  My wife and I have a car but no car loan.  We don’t believe in car loans.  We’ll save up for our next car.  But we do have transportation costs.  These include commuting costs (subway), gas, insurance, etc.  We put these after all of the housing, utilities and food items.  We probably could move restaurants below transportation.  I’ll talk with her about that now that I think about it.
  7. Clothing: We budget for this on a month-to-month basis.  It is at the bottom of our list.  It’s necessary, but we both have enough clothes that other things are just more important to us.
  8. Medical/Health: For us, this comes out before we even get take home.  And because we only budget our take home it is not in ours.  If things changed we would adjust and move it up the list.  We haven’t really thought about it, but I imagine it would be pretty high up.  Our medical insurance premium is taken out of our check and flex spending (more on this later) for co-pays and other costs comes from there.  Thank God and knock on wood, but that’s covered us so far.  We do have an emergency fund to cover anything crazy for which we would have to pay a copay.

So there you have some thoughts on our priorities.  Some may feel charity begins at home and lower the “charity” entry in priority.  That’s OK.  Do what works for you.  But listing things in order of priority to you and your family helps identify things to eliminate or reduce when things are tight.  Just look at the bottom!  Also, the exercise of putting things in the budget – and thinking and talking about how much they are a priority to you – puts things in perspective.  This was part of my thinking with my sports memorabilia.  There was nothing in our budget that I thought was less of a priority.  And the memorabilia was a fairly large expense.  So I cut it out.  Now it’s for sale.

That’s about it.  This rule is fairly simple.  Bottom line:  Think about your budget items.  Why are they there?  Are they a priority?  What’s more important to you?  What’s less important to you?  Why?  Why?  Why?  As you get to the bottom of the priority list ask yourself: Do I even need this at all?  You’ll be surprised how many times the answer to that will be “Nope.”

So until next time – get your budget together.  Prioritize things.  Take control of your money!  And, if all else fails – put the credit card down and slowly step away from the mall!

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