 In times of recession we are faced with some tough financial decisions. In order to make informed choices, you need to take stock of all aspects of your financial picture, learn to prioritize your bills and expenses, and adjust accordingly.Prioritizing your expenses is a key component to conquering your debt; it will give you an opportunity to really examine your spending habits and figure out what’s truly important and what isn't.
Figuring out which bills need to be paid first and why, and which obligations can be eliminated or postponed, will help you create a plan for surviving tough financial times. You may even come out on the other side of this recession in better shape than before! |
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Taking Stock
Finding out where your money goes is the first step in this process, so you will need to take note of all your expenses:
- For one week, record every expense that you or your family make- from paying the mortgage, to that Starbuck’s coffee on you way to work. Keep receipts when you can, but when that isn't possible, log the expenses in a notebook or on your cell phone. At this point make no judgments regarding spending habits. Just record expenses.
- Next, write down all bills and obligations, their due dates, payment amount and all contact information for that creditor. You will use this information along with your recorded weekly outgoings, to help you prioritize your debt.
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Examine the Data
Now that you have your data, it is time to examine it:
- Lay out what you’ve gathered at the end of the week, on the dining room table.
- Place each receipt or expense in one of 3 piles, organized as:
1. Necessary/Non-Negotiable
2. Optional/Adjustable
3. Perhaps Unnecessary
Your "Necessary/Non-Negotiable: pile will include bills like your mortgage or rent, insurances, heating, electricity, childcare, and any vital non-covered medical expenses. Depending on your situation, your car payment will probably go in the "Necessary" category. Clothing and food, and perhaps electricity will probably go in the "Adjustable" pile. Everyone’s expenses will vary according to their own needs and circumstances, but you get the idea. After you have looked at the raw data, you’re ready to begin prioritizing your expenses. |
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Eliminating and Prioritizing Expenses
With the data (your organized piles) in front of you, you’re ready to make some thoughtful decisions:
- Create a master list by charting each item in your piles, on your computer or in hard copy, using your three categories. You will prioritize using this list. Print it off and get out a red pen and a black pen. As you look at your list, ask yourself the following questions:
1. Can this expense be adjusted somehow?
2. Can this expense be eliminated altogether?
3. Could this bill be negotiated for better terms until times get better?
- Any expense that can be eliminated altogether- cross off with a black pen, for example: the Starbuck’s coffee.
- Any expense that can be adjusted, food and lunches for example- circle with red.
- Any bill that might possibly be negotiated for better terms- put a red star next to it, perhaps deferring a school loan, or refinancing or restructuring your mortgage.
- Thoughtfully go down the list, totaling expenses in each column. You will come up with expenses that you feel are unavoidable or worthwhile, and at the same time, you will create savings by adjusting and eliminating certain expenses that you can do without.
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Taking Action
You will now have a clear picture of where your money must go and when. You have identified areas that need to be adjusted, and you have decided to sacrifice certain habitual expenses that drain your budget needlessly. Until the economy straightens out, use what you’ve learned to guide your purchasing decisions.
Here are some examples of how expenses can be reduced during tough financial times:
- Postpone buying the new washing machine if your old one can be fixed for less.
- Shop where real discounts exist.
- Try buying in bulk and using coupons.
- Check out local consignment shops for clothing needs.
- Ask for a deferment on your student loans.
- See about refinancing your car or home for a lower interest rate (for those with perfect credit only, unfortunately).
- Pack healthful lunches 4 days of the week.
- Consolidate credit cards to a single lower interest card.
- Contact any creditors and ask if due dates can be adjusted to make it easier to pay on time.
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Use Your New Plan to Guide Future Decisions
Perhaps prioritizing bills and your expenses has forced you to look at some hard facts, and maybe you have been living beyond your means. For example, housing expenses, including taxes and insurance, should not exceed 30-35% of your gross income. Would moving to a less expensive home, selling, or renting make more sense? When purchasing your next car, wouldn’t it be nice to have a lower payment instead of a fancier model? |
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When planning the family vacation, consider daytrips with a historic or art focus, rather than an extended long-distance trip. Get the idea?
Even when hard times are looking like they’re fading away, use what you’ve learned to guide your buying decisions. Debt is a necessary evil in our society, but its hold can be lessoned if you make wiser decisions and create new spending habits.
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More Help
Prioritizing your debt during a recession may be even more of a challenge that it would be at other times, but do not give up. Taking action now will surely be to your benefit later on. You might want to read some of the other articles in our “Save Money” section of this website.
Other helpful sites on the web that provide money anagement advice, include:
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