How Do I Prioritize My Spending?
There are a lot of articles and chatter out there about how folks should prioritize their spending right now, especially in light of income reductions and job loss. It's the first of the month and the time when some big bills are typically due (think mortgage and rent), so many people are understandably concerned about how to use the money they have available to them. They're wondering who they should pay first. And what happens if I can't pay everyone I owe?
As a financial coach, a cornerstone of my teaching has always been to encourage people to prioritize their spending regardless of what’s going on in the world, so this is a topic I’m comfortable diving into. In general, my teachings on prioritizing your dollars has not changed.
I encourage my clients, and you too, to cover these expenses FIRST (here's a short video where I talk some more about this). Think of these expenses as your home - your fortress. You have four walls and a roof that need to be maintained:
Housing (rent, mortgage, utilities)
Insurance premiums (life, health, disability, etc)
Here’s where I would change up things just a bit right now.
If you do not have an emergency fund already (of at least $1,000 but prefereable a few months worth of living expenses) AND you’ve been offered some flexibility in terms of deferring rent or mortage payments this month, now might be a good time to take advantage of that relief.
If you choose to not make your rent or mortgage payment this month because you’ve been given that option, divert all of those dollars to your emergency fund (a savings or money market account works great for this).
The same is true if you have federal student loans. Payments on those have been deferred until September with interest rates dropping to 0% for the same time period. If you do not have a few months’ worth of expenses set aside in an emergency fund, take those dollars that normally would pay your student loan bill this month and put them in your emergency fund.
This isn’t a long-term strategy, but rather a short-term tactic to accomplish the following:
Put food on your table
Keep gas in the car to get you or another family member to work
Foster a sense of dignity and respect as you learn to take care of your basic needs and quit agonizing over how you’re going to cover everything right now
If you can’t cover all of your expenses right now, you just can’t cover them. Do what YOU CAN.
Here’s what I would strongly encourage you NOT to prioritize right now:
Credit Card Payments
Any excess subscription services that you just don’t need right now
Online shopping to numb the frustration of being home (possibly with screaming children - I get it)
If you owe money on a credit card, but you cannot cover your 4-walls, please do not prioritize payments to these creditors over putting food on your table. I am not suggesting that you do not owe this debt – you do. But NOW is not the time to settle up on it.
Instead, consider this as a possibility:
Call your creditors.
Let them know you cannot make your minimum monthly payment this month due to income reduction.
If you’ve looked at your budget and you can afford a smaller payment (but less than your minimum) offer them that.
Tell them you’re on a plan – you're budgeting each month and you will stay in touch with them to let them know when you can next pay them.
Remain calm, courteous and civil.
Stay in touch with them regularly to update them on your status, even if that status is “nothing has changed”.
Right now creditors are forced into a position where they have to work with clients in a way different than before. Many are being more helpful than usual!
Don’t let fear get in the way of taking control of the money you DO have.
Here’s what I’m not seeing in the media that’s a little concerning: the use of credit cards. Credit cards are not income, and your credit line really shouldn’t be included as income in your budget. When I talk about budgeting and prioritizing spending, I’m talking about how you use the CASH available to you right now.
Please do not hope that debts will be forgiven. Don’t reach for a credit card to keep personal life as usual running. We all have choices to make right now. Hard choices. Tough choices. Uncomfortable choices. Choices we’d rather not have to make. If you choose to prioritize your comfort over your long-term financial peace and well-being, I believe you will eventually regret that choice. Because what people forget to consider when they reach for debt to provide relief is that they will have to pay this back one day.
I'm not saying you don't deserve to have some comfort in your life right now. What I am saying is to be intentional. Exercise your wisdom. YOU know when you're going overboard. You KNOW when there's an expense you can let go of right now for your long-term well-being. I don't have to point it out, because most of us have a little voice inside of us that reminds us when enough is enough. Usually we ignore it. I'm asking you to consider listening to it from time to time.
I believe there are vast possibilities within this crazy scenario right now.
This is an opportunity to reevaluate your relationship with money. In what ways have you spent with less than focused intention in the past? In what ways have you given up on your ability to afford your goals and dreams? In what ways have the cycle of debt crept into your life and kept you tethered to monthly payments and unrealized savings goals?
NOW is the time to shift your mindset. In what way CAN you preserve the money you do have? In what way CAN you increase your income? In what ways can you become more intentional in how you use your hard-earned money? What goals and dreams do you have that can be reignited?
Here's your inquiry for the day:
When the dust has settled and we are faced with our new normal on a daily basis, how will you look back on this time and the manner in which you approached it?
It’s your choice. It always has been and it always will be. I believe now is a chance for self-reflection and growth. Now is your chance to reconsider all the ways in which you do control your life.
Quote of the Week:
"Between stimulus and response there is a space.
In that space is our power to choose our response.
In our response lies our growth and our freedom."
Here’s to experiencing the freedom of an intentional life,
Financial coaching can help you prepare to experience the freedom of an intentional life. It is designed to infuse hope and highlight possibilities. My goal is to remind you of your innate abilities to make wise choices for you and your family and take back control of your money. Schedule your complimentary consultation today and start experiencing the freedom of your intentional life.