Prioritizing Our Expenses

Prioritizing Our ExpensesWithout considering which expenses are or should be our priority, we can easily allow any bill delivered to our Inbox or Mailbox to take precedence in our financial decisions. Rather, by controlling our spending and prioritizing our expenses, we can banish from our finances those purchases that do not contribute to our identified measurements of financial success (a.k.a. written goals).

I suggest that we organize and prioritize our expenses by using my quadrant system outlined below:

  • List all of the expenses we have each month as well as those we have had in the past 3 months.
  • Categorize the expenses into needs or wants. Write “1” next to any need while we write “2” next to a want. A need includes “physical survival” expenses as well as those required to sustain a minimal level of expected lifestyle.
  • Categorize our expenses (both needs and wants) as either an obligation (a recurring and/or contracted bill, usually with a set due date) or a discretionary expense (a purchase we are free to make anytime or not at all). Write “A” next to our obligations and “B” next to our Discretionary Expenses.
  • Make a 4-quadrant Payment Priority Chart by drawing a vertical line straight down the middle of a piece of paper and then drawing a horizontal light straight across the middle of the same paper (essentially, a cross). Label the top left quadrant as 1A, the top right quadrant as 1B, the bottom left quadrant as 2A and the bottom right quadrant as 2B.
  • Looking at our list of expenses, write them into their corresponding quadrants. Within each quadrant (especially 2A and 2B), priority our expenses from the most important to the least important.
  • Continue until all of our monthly expenses have been added to our chart. It may look something like this:

Expense Prioritization Chart

We now have a visual plan of attack for paying our bills. Any expense in the 1A quadrant (top left) must get paid, absolutely, every month. Anything in the 1B quadrant (top right) should get paid also, but we can be flexible as to when it gets paid. Anything in the 2A quadrant (bottom left) should also be paid regularly, though we should aim to keep the number of expenses in this quadrant to a minimum. Finally, the 2B quadrant (bottom right) will contain expenses that we can remove from our budget whenever we are having a financially rough month.

Author of Everyday Money for Everyday People, Todd ChristensenTodd Christensen

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