Personal Finance Flowchart

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Is it better to save or pay off debts? Where do the things you really want fall under the things you need? How do you spend your money for the best outcome? Prioritising your finances can spur a lot of confusing questions.

We’ve created a step-by-step flow chart that will help you categorise life’s expenditures and decide how to prioritise your budget to cover them all appropriately. Use this guide to better understand your personal income flow and how you can update your current process for a better balance to your finances.

There are several levels to this flow chart. Follow the flow of level one through six to better understand the top priorities down to the smallest expenses. Here’s a preview of each level:

Level 1: Basic Budgeting

Level 2: Emergency Funds

Level 3: Passive Preparation

Level 4: High-Interest Debts

Level 5: Long-Term Savings

Level 6: The Leftovers

Level 1: Basic Budgeting

Before you can start your journey through this financial flowchart, take account of your absolute most basic needs: housing, food and basic necessities. For a more thorough examination of your budget, take a look at this post. Your basic budget should include the following:

  • Rent/mortgage, including any insurance
  • Foods/groceries
  • Utilities
  • Toiletries (dish soap, tooth paste, etc.)
  • Transportation
  • Mobile phone

Level 2: Emergency Funds

Once you’ve accounted for the absolute basic needs of a typical day, you need to prepare for the unusual day. Building emergency savings is a great way to make sure that when unexpected expenses come up, they don’t disrupt your normal budgeting and throw everything off. Just like any goal, you want to start with an achievable target, then work your way up. Here are some benchmarks you can hit as you grow your emergency savings.

Level 3: Passive Preparation

Does your employer match your personal pension plan (PPP) savings in any way?

 

If no, skip to level four.

 

If yes, look into what that percentage is exactly. It’s suggested that you match at least what your employer gives you since it’s “free money.” Small contributions to your retirement now will help you a lot in the long run, and they’re a great way to passively save for the future.

Level 4: High-Interest Debts

Do you have any high-interest debts? These are debts with an interest rate of 10 percent or more. Typically, credit cards and personal loans fall into this category while car loans and mortgages do not.

If no, consider allocating extra funds to your emergency fund savings and increasing your savings goal to six months’ pay. Skip to level five.

If you do have high-interest debts, create a pay-off plan that is aggressive but attainable. Ideally, you want to pay them off as quickly as possible to help minimise the amount of interest you pay in the long run.

Level 5: Long-Term Savings

Long-term savings include major things like purchasing a home, contributing to your pension savings, etc. These are savings goals that are very large and need to be contributed to over years.

If you don’t have a PPP through your employer, look into an Individual Savings Account (ISA), a tax-free individual savings account. It is only limited by how much you can contribute annually (currently £20,000 per year).

If you’re looking to make a large purchase with long-term savings, there are a number of ways to get there. Here’s a few tips on how to save money for a home.

Level 6: The Leftovers

If you still have funds to spare all the way at level six, you’re probably a brilliant budgeter. Great job! You manage your money wisely and are able to still have some left over. You can always allocate those funds to one of your existing savings plans, or you could explore one of these options:

 

When it comes to budgeting, not all purchases are created equal. Make sure you are prioritising your paycheque for the best results.

 

The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

Barbara Davidson

About 

Babs is a content writer at Enova International, Inc. with a Bachelors in Cinema Studies and English from the University of Illinois (ILL-INI!). She loves binge watching musicals, reading in the (sporadic) Chicago sunshine and discovering great new places to eat. Accio, tacos! Find out more about her on Google+.

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The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.