How to Prioritize Bills & Expenses

Sometimes when the unexpected happens it means having to tighten your budget. Whether it be a recession, drop in income or an unforeseen payment, you may have less money than before — which can make paying your bills and expenses challenging. When this happens, prioritizing what needs to be payed first is difficult but necessary — especially when working with a tight budget.

We’ve highlighted seven tips to help you identify which bills should be prioritized and paid first when money is tight.

Which Bills Should Be Paid First?

Generally, the bills you should pay first are the ones that cover necessities — the main resources that keep you and your family safe and healthy. These necessities include shelter, water, heat and food. Once necessities are paid for, focus on expenses related to your vehicle. Even in harsh economic times, chances are you still need your car to get where you need to go and make a living. Lastly, pay bills that can impact your credit scores such as credit card payments and loans.

Prioritizing Bills on a Budget

With the bills you should pay first in mind, here’s the order for how you should prioritize your bills when on a budget.

1. Mortgage or Rent Payments

A safe home for you and your family always comes first, so paying your rent or mortgage should always be your highest priority payment. Plus, you don’t want to risk being evicted or having your home foreclosed by being late or continuously missing payments.

If you’re unable to make your mortgage or rent payment for a month due to your budget, don’t panic. Reach out to your lender or landlord and explain the situation to them. Often, they can point you towards programs that help homeowners or renters who are in similar situations. For example, the United States Department of Housing and Urban Development (Opens in a new tab) has resources and programs to help if you’re having trouble keeping up with mortgage payments and can help you avoid foreclosure.

2. Utilities

Paying your water, electricity, sewer and gas bills should be your next priority. Just like the roof over your head, these core utilities are essential to your home and are required for the day-to-day goings-on of your family. Once your monthly rent or mortgage is paid, make sure your utilities follow.

If you cannot pay your utility bills, be sure to contact your utility companies. Chances are they’ve helped many who are in similar situations to you and will be able to offer solutions such as putting off paying your bill for a month or spreading utility costs out annually to make them more manageable. There are also a number of government-funded state-run programs that can help with utilities, such as the Low Income Home Energy Assistance Program (Opens in a new tab), which assists families with energy costs. Be sure to research programs that are specific to your state.

3. Insurance Premiums

With your rent or mortgage payments and utilities taken care of, now prioritize paying your insurance premiums. Insurance acts as a financial shield that protects you if something unexpected happens. So — if the unexpected does occur — insurance can help protect you from accumulating additional expenses, whether that be damage from a car accident or damage to your home from a storm.

Lapse in coverage can occur if you’re unable to pay the minimum amount of your insurance premiums when they are due. If a lapse in your coverage happens and you are uninsured if something unexpected should happen, it can make your financial situation much worse. To help prevent this, insurance companies may offer different ways to make your insurance better fit your budget. American Family Insurance offers a variety of discounts that include markdowns and rewarding safe habits to help your insurance better fit within your budget.

4. Food and Other Living Essentials

Obviously, food is a necessity and making sure you and your family are fed is a top priority. Food and living essentials such as hygiene and toiletry products are day-to-day needs, but they tend to be less expensive and more flexible cost-wise than other key necessities like housing payments and utilities. Even with that in mind, the health and well-being of you and your family is important, so prioritize buying necessary food and living essentials.

When on a budget, there are many ways you can save money on groceries. Limiting the number of trips you take to the grocery store and buying store-brand products instead of name-brand can be a good place to start. If budgeting for food becomes a serious concern, government resource such as the Supplemental Nutrition Assistance Program (Opens in a new tab) can aid eligible families by helping to provide nutritious food.

5. Car and Work-Related Expenses

When you’re working, you’re making money that can go towards paying bills. That’s why it’s important to prioritize paying expenses that enable you to work. A key work-related expense may be paying for your car, as chances are it’s how you get to work each day. To prevent losing your car and enable getting to work, be sure to pay your car loan or other vehicle-related expenses each month.

If it doesn’t look like you’ll be able to make a car payment, get in touch with your lender. You may be able to refinance or modify your loan, which may help make future monthly payments more affordable. If you need to pay off your loan and are willing to part ways with your vehicle, consider selling your car and buying a used or more affordable model. If your current car is old, you may be able to find a more recent and more efficient car that a low cost.

6. Credit Cards and Unsecured Debts

Less important than necessities, insurance and work expenses is paying off unsecured debts. Unlike other more pressing bills, credit cards and similar debts can be deprioritized since they may not significantly impact your everyday life. Credit cards do typically have high interest rates, but at the end of the day it’s more important to pay bills that keep your family healthy and safe.

Continually missing credit card payments can damage your credit score and make it more difficult to take out future loans, so reach out to your credit card company or lender if you’re worried about being able to make a payment. They may be able to temporarily pause payments or even guide you towards a repayment plan.

7. Student Loans

Student loans are typically a payment you can prioritize least. Like unsecured debts, they don’t necessarily impact your daily life and there’s usually a fair bit of flexibility in terms of how much needs to be regularly payed and when. Although they can be least important compared to other more pressing expenses, student loans can add up pretty quickly if neglected. If you can’t afford your federal student loans, forbearance or deferment can be requested. Modified repayment plans can be an option too, just reach out to your lender or loan servicer.

Expenses to Cut From Your Budget When Money Is Tight

There are a handful of expenses you absolutely should prioritize when on a budget, but there are also many expenses that you can cut to save money each month. These expenses are typically related to “wants” or things that you don’t necessarily need, so consider what you can pass up while you adjust your financial situation. This may include lowering your home Internet speed and mobile phone data plans, or dropping your cable TV. It’s not easy letting go of your favorite streaming service or gym membership, but similar monthly subscriptions can be cut too.

When the unexpected occurs, it’s important to have a plan. Learn more about how to create an emergency budget from American Family.

This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.