From Podcast #183: Bills Are Paid, Now What?, the one in which Jesse helps you prioritize your prioritization. What can we say? We know how to have a good time.
For the next couple minutes, I’m going to talk (write, whatever) in-depth about Rule One: Give Every Dollar A Job. That’s a fancy way of saying prioritize your dollars. It sounds simple—it actually is simple—and yet very few people do it.
People always ask about how they should prioritize, in what order to prioritize their commitments, future needs, and everything in between. Let me give you some guidance.
First, start with survival. Just survival, right? Feed your children. Shelter your family. Maybe keep the lights on. Just basics, just what you need to survive.
Next up, obligations. Obligations range. People can say they’re obligated to their Netflix subscription. I don’t say Netflix specifically because I’m casting judgment; I say it because some of you would say, “Oh yeah, of course that’s an obligation,” and some of you wouldn’t.
All I’m saying is people have wildly different definitions of obligations and it’s up to you to determine what that looks like for you. My job is only to tell you that you prioritize obligations, second only to survival needs.
Then, you budget for your true expenses. We are veering into Rule Two (Save for a Rainy Day) territory, so I guess I should have mentioned we’ll also be talking about Rule Two, as we dig into Rule One. But they’re one and the same, really, with Rule Two you’re just prioritizing for larger, less frequent expenses: Christmas, vacation, property taxes, a medical deductible, perhaps.
If you have larger, less frequent expenses—and we all do—you should break those up into smaller, monthly amounts and embrace those true expenses as part of your monthly expenses. That line that you thought was your normal month, that line that you’ve never met, it’s likely because you are not factoring in your true expenses.
So, you budget first for survival, then obligations and then you look at your true expenses—look ahead, break them up, and treat them like monthly bills.
What would you be budgeting for after your true expenses? I like the idea of budgeting to get out of debt.
It’s kind of like you’re circling back around to the obligations; you’re saying, “I would like less of these.” So, in a sense, as you’re paying off debt, you’re just going back and you’re saying, “Yes, I want fewer obligations so maybe I can budget for my true expenses even more.”
But even more importantly than that, we want you giving every one of your dollars jobs. And if some of those dollars have been given jobs from stuff you did eight years ago when you were a 22 year-old college student, yeah, that’s not the most fun situation to be in. So pay off your debt, decrease your obligations and free up more money to assign new jobs, better jobs to improve your life today.
Is there a next thing after paying off your debt? Absolutely. Quality of life.
What do you love? I fancy myself a woodworker, even though I’ve just barely begun procuring the necessary woodworking tools. So yes, I am a woodworker now. Have I touched any wood? Nope. Have I bought the tools? Yep. It’s all about my quality of life.
I have this romantic hope that one of these days I’ll just be sitting there with a hand plane, leveling a piece of wood, out in a little shop, listening to some country music. That’s quality of life right there. And it’s important that you decide what would up your quality of life.
Finally, treat yourself.
My family and I recently went on a Disney cruise. It took us a heck of a long time to save for the thing because they’re three times more expensive than a normal cruise. Also, I have five children.
But it was a treat. Obligation? Heck, no. True expense? We treated it like one because we saved for it by breaking it up into monthly amounts and saved for half an eternity to get there. But it was just treating ourselves. I’m not going to say it’s critical, but it is important.
It’s important to recognize that, “Hey, I’ve covered my obligations, I’ve got cash set aside for my true expenses, I’m paying off my debt.” Or, “I’ve paid off my debt, depending on your intensity, I’m improving my quality of life. Now maybe I want a treat. I’m going to get the Tillamook ice-cream instead of the store brand.” My heavens, how you treat yourself.
That’s the order of priorities. That’s it. I went over my four minutes — I knew I would. Survival, obligations, true expenses, get out of debt, increase your quality of life, and treat yourself.
Until next time, follow YNAB’s four rules and you will win financially. You’ve never budgeted like this. For more about how to stop living paycheck-to-paycheck, get out of debt and save more money, faster—subscribe to the You Need A Budget podcast today!