When you’re trying to start focusing on your finances, it may seem like there are a lot of moving parts. One thing people often wonder is, “What should I pay first?” So, we created this payment priority rankings list to help answer that question.
Remember, it might be a little different for some people but this list will definitely help in some way:
Payment Priority Rankings
We put this list in order of what we think is most important – #1 is most important and the list goes on down to #6.
1. Pay your monthly bills.
You have to take care of your housing and living expenses before directing money to other places. If you are behind on a few bills, getting current should be your top payment priority after ensuring that you have food and shelter.
After living expenses are taken care of, pay your minimum debt payments. Doing so will at least keep you from accumulating late fees in addition to the interest that is already compounding.
2. Set aside $ for weekly expenses.
Weekly expenses can include a variety of things based on your family size, job, and values. These expenses include groceries, home expenses, entertainment, clothing, and other non-billable expenses.
Creating and following a budget will help you figure out how much money you need to set aside. Think of your budget as the spending plan that tells you where your money should go each month.
Read: How to create a budget (series)
3. Put $ into emergency savings.
Having an emergency fund will provide you with a little security when unexpected expenses occur or if there is a job loss or pay delay. Start small and work your way up to 3 – 6 months of expenses in emergency savings.
You just want to be sure that you actually have enough money to cover an emergency if one occurs. Read this article to determine how much money you should have in your emergency fund.
4. Plan for future large expenses.
Many people are thrown off course by irregular expenses that occur every year like car registration, car maintenance, birthdays, holidays and annual health checkups.
By setting aside money every month for known upcoming expenses, you transform from being reactive to proactive. Once the expense comes, you’ll have the money to cover it without needing to rob Peter to pay Paul.
Check out our post on sinking funds to learn how to make a better plan for these irregular expenses.
5. Make extra debt payments.
Once you have everything in your life covered, extra debt payments should be made to reduce the amount of time that you are paying interest and being tied to a creditor.
Like anything new, start small with whatever you can set aside after taking care of your obligations. Then, watch your debt decrease while your net worth and peace increase!
Just make sure you take care of your basic needs first before you think about putting extra money towards debt.
6. Invest.
Investing may actually come in higher in the rankings depending on your financial situation and stability but I do believe that investing is important and should not be ignored.
- If you are paying off debt, invest up to your employer’s match and throw the rest to debt.
- If you are debt-free or have low to 0% interest debt, you can decide how much you want to invest to achieve your future goals.
Unsure of the requirements to successfully gain your employer’s match? Contact your HR representative or read the employee handbook. Sometimes there are tenure, vesting and other stipulations regarding the matching process.
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At the end of the day, after you get paid, you have a lot of choices to make. I hope this list will help you prioritize your payments if you were having trouble deciding before.
If not, how would you improve this list? What things would you add or rearrange in the rankings? Let us know in the comments below!
$tay Wealthy Fam,
— Dannie