How To Use Priority Budgeting To Help You Save

Saving money is important for any larger things in your life. That could be buying a house, getting married, going on holiday, buying a new car or doing home renovations. Sometimes it can be really hard to know what you should be saving for. Or how your money should be split. If you’re putting money aside for too many things at the same time then you end up spreading things too thin. And that’s why I use priority budgeting to work out what the big things to factor for are.

It can be difficult to decide what should be paid or saved for first, especially if you’re on a tight budget with prices going up.

What is priority budgeting?

Think of your budget like a pyramid. You have the super important things right at the top and they’re your top priority. For pretty much everyone this will be day-to-day living expenses because you can’t stop paying bills/ housing costs etc. This will be your number on priority to assign how much you need for it.

Then the rest of the pyramid will have the next priorities for where your money should go. This could include debt repayments/ paying off loans and overdrafts, it could be pensions and investments related, perhaps a house deposit, or it could be for things like a wedding, a designer handbag, or a holiday.

There are no right or wrong things you should be saving for, it’s about determining what’s important to you. You might just have one or two priorities in your pyramid, but I’d suggest not having more than four after living expenses otherwise you’ll spread your money too thin.

When you go to plan your budget you’d put the money aside for your top priority, then money for your second, etc. So any savings near the top of your pyramid have more chance of being completed or saved for first. This is always good as if you have a bonus or earn some extra money you have a priority list of what you should do with that money.

You might find that without realising it you already practice priority budgeting in some capacity.

What’s on my priority budgeting list

Of course, number one is day-to-day living costs, and then for us, sinking funds for events comes next. This will always be at number two as there will always be small things happening. But these would be for things like a meal out or a day trip we have planned. So as soon as our living costs come out I will allocate how much I need to our sinking funds depending on what’s coming up that week/ month.

Our next priority is saving for our cruise. This is the third because we go in November so don’t have much longer to save and complete our goal. Next up is our wedding fund. We have a set goal/ budget so put money aside each week towards the cost. Once we’ve been on our cruise this will move up a priority slot as our wedding is next May.

Then our bottom one is our final home renovation which is our garage. We’ve saved about 60% of what we need for the work but it’s something we hope to have finished in the next 3-5 months. For that, we need some extra savings. The reason this is our bottom priority is if we only had money to save for the wedding or our garage, the garage would go on pause.

How our priorities will change

Once both our cruise and our wedding are completed one of our top priorities will become our honeymoon savings. We’re planning to go about 10 months after we get married. And once our garage renovation is complete this will change to our next home-related task. This will either be the garden, or new windows and doors.

But when the time is right I want to get our emergency fund saving back on the priority list. I’d also love to add in more pension savings and future investments. Plus I’d love to save to get an electric car, but this will be once some of our other priorities have been ticked off and completed.

Do you do priority based budgeting?

Pin It