TLDR: When times are tough, navigating which expenses to pay and which to delay can be confusing or overwhelming. Start by prioritizing your necessary bills and monthly living and then tackle more flexible expenses, like debt and entertainment, based on what’s left over.
The global pandemic has turned our financial worlds upside down. COVID-19 has led to record unemployment levels, leaving millions of Americans uncertain about how to pay their rent, mortgage, and basic bills. When we have less money to work with, paying our daily expenses can feel like an overwhelming scramble.
If you’re in this boat, you might be wondering how to navigate your financial crunch and how to prioritize what bills to pay first. If you haven’t established a financial plan when you and your partner first got married or moved in together, that’s okay. This handy step-by-step walkthrough will focus on prioritizing your family's bills and expenses so you can make the best financial decisions as a team.
Now is the time to take a deep breath and dive into your current financial situation to get a clear understanding of what you owe, what bills keep the lights on (and when they’re due), how you’ve been paying your bills so far, and what’s currently taking up space in your family budget.
You’ll need a snapshot of your financial reality, no matter how tough thought out plan to tackle your debts, bills and expenses going forward into 2020. While you’re going through your budget, the three most important questions you need to ask yourself are:
How much money is coming in every month? How much money is going out every month? What necessary expenses (such as repairing a roof or moving to a new city) do you anticipate in the near future?
The best way to "know what you owe" and keep track of your monthly earnings and expenses is via a family budget planner such as an app, a spreadsheet, or plain old pen and paper. Budgeting and money planning apps are helpful because they can automatically keep track of all money both coming in and going out and keep you posted on your progress with minimal effort. The most important thing is that your plan is easy for both of you to access and understand.
If your or your partner’s employment situation is shaky, it can seem impossible to make predictions around how much money you’ll have coming in. And of course, there will always be expenses that you can't plan for, such as illnesses or accidents. But creating this kind of a budget can be overwhelming and emotional, if you work on it as a couple, it will be less stressful to handle financial emergencies as they arise because you’ll already have an idea of your household’s financial reality.
Once you've created a clear picture of both what you're earning and what you owe, it's time to prioritize your family expenses. These are your monthly “fixed expenses” or the bills that will need to be paid in order to keep the lights on, your family in your home, and from major disruption in your lives.
Every family has slightly different fixed expenses and costs and bills that cannot (and should not) be avoided. These bills are the ones you need to pay every month. They include anything that could cause you to lose your house or job (such as your car payments), affect your ability to live safely, and damage your credit.
This means anything that you and your family absolutely cannot live without, such as groceries, necessary medicines, and certain bills. Common examples, ranked in terms of priority, include:
House payment (mortgage) or rent Key utilities, such as water and electricity/gas Other home-related expenses (life insurance, home insurance) Work-related expenses (car payment, possibly internet, if you work from home) Taxes Student loan payments
Keeping your house and your job should be your number one goal. If you take certain medications or require health care services, they may be included in your fixed expenses.
And while food isn’t a “fixed” expense (it may vary from month to month), everyone needs to eat. Estimate how much money you spend on groceries and food and write down or enter that amount into your app. You can make adjustments to that number later, but it’s important to take it into account and establish that figure into your fixed expenses for now.
If you have any money left over for the month after paying bills, this should go towards paying off any debts such as credit cards and medical bills. Prioritize the ones with the highest interest rates first. Even if you can only pay the minimum balance each month, your family is still making progress towards being debt-free.
This helpful resource will further explain how to best choose which bills and expenses should be marked as high-priority.
The Consumer Financial Protection Bureau is offering Americans guidance on how to deal with their bills during COVID and 2020 in general.
The CFPB recommends that you swallow your pride and get in touch with your lenders and let them know your situation as soon as possible. Besides adding unwelcome stress, falling behind on your bill payments can damage your credit and make life harder.
Banks, credit card companies, and your other lenders may be able to adjust your payment schedule or and waive fees. Again, you need to keep your home, your car (if you have one), and keep your credit on track as best you can.
When you get in touch with your lenders, tell them exactly what’s going on, so they can help you get on track and make a plan starting today.
If you do this, you may end up lowering your fixed expenses, which is a huge win during a tough financial time like what we’re all facing in 2020.
When you’re in a cash crunch, you’ll want to cut down on your other expenses. Finding ways to reduce your monthly living expenses as a family can have a big impact on your family or household budget, especially if you focus on expenses that are recurring or larger than they need to be. Here are some ideas to help you get started:
Re-negotiate your existing bills. After you’ve tackled your fixed expenses, look at places to trim, scale back, and negotiate. Consider downgrading to a cheaper cell phone plan, cut your subscription payments, such as Netlix or Hulu. See if you can negotiate your gym membership and decide whether you want to keep it in 2020.
Cancel unnecessary subscriptions. It’s so easy to sign up for things and then forget until those charges start showing up on your credit card statement. Go through your credit and debit card statements with a fine toothed comb and cancel everything you can. You may be surprised how many things you’re still paying for.
Search for alternatives. Compare insurance rates with other providers and make a change if you need to. Coming to the table with proof that you can get a better deal elsewhere is good ammo for getting your bill lowered (without the hassle of having to switch providers).
Ask for deferments. Deferments refer to agreements between lender and borrower to temporarily decrease or suspend payments on a loan. These most commonly occur with student loans, which can be deferred for reasons ranging from unemployment to economic hardship to returning for further schooling.
You must apply to your provider stating your reasons for requesting a deferment. Typically, student loan payments can be deferred for a maximum of three years. Good to know: The CARES Act of 2020 provides broad relief for federal student loan borrowers. To learn more, go here.
Balancing budgets, paying bills, debts and living expenses can be a difficult task, especially with the world in such an uncertain state. However, by working together as a couple to understand your money needs, prioritizing key bills, focusing on reducing debt, and seeking ways to reduce your financial burden, you should be able to achieve financial security.
If you’re looking for a tool to help you manage your family budget, Zeta can help you on every step of this journey.
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