How to prioritize expenses during a financial crisis

What does it mean to be in a financial crisis?  How do you figure out which expenses to prioritize when you’re in the middle of one?  Many families go through a stressful financial period like this and it can be scary and confusing to successfully navigate through it.  A financial crisis happens when your debt and expenses outweigh your income. This means due to job loss or some other factor that controls your ability to have enough income you are behind on payments and are worried about losing everything.

When debt collectors won’t stop calling and your mailbox is filling up with bills it can be overwhelmingly difficult to know which expenses to prioritize first.  The most important expenses to take care of are the 4 Walls of Necessity. If your bill or expense doesn’t fall into one of the following 4 categories, it can wait for now.

Food

Buy food for your family, make sure your basic food needs are covered.  This does not mean eating out or buying expensive ingredients at the grocery store.  As long as you have the basic staples necessary to make a sandwich or simple meal you should get by just fine.

Shelter and Utilities

You need to be current on your rent or mortgage payment so you don’t run the risk of getting an eviction notice.  Water and electricity are basic necessities that are just as important as food and shelter. Keeping the lights and water on ensures that you and your family can stay warm, clean, and comfortable in your home

Transportation

You need to have some way to get to and from work, whether it’s driving a vehicle you own or taking public transportation.  Auto payments must be current and you must be able to cover gas and basic maintenance.

Clothing

This does not mean designer clothing!  Just buy what you need – clothing for work/school and to wear around the house.

Any other expenses will have to wait until you comfortably have your 4 walls covered.  Once your 4 walls are in place, worry will start to slip away and you can begin to sort through the rest of the expenses.  

It can be overwhelmingly difficult to know which expenses to prioritize first.  The most important expenses to take care of are the 4 Walls of Necessity. Click To Tweet

Here are some other things you can do during a financial crisis:

• Sell whatever valuables and assets you can
• Find a second or third job
• Apply for government assistance programs
• Contact your creditors and ask for a rate reduction or deferred payments

Once you’re back on your feet and your debt is paid off, you will want to put 3 to 6 months worth of expenses into a savings account so that you will never have to go through this again!