Sunday, February 23

How to Build a Personalized Bill Hierarchy (and why you need one!)

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A personalized bill hierarchy is simply a way to prioritize your expenses based on essential to frivolous. It gives you a quick way to visualize which are the most important, especially if you don’t have enough money to pay everything.

In my article What If You Really Can’t Pay Your Bills, I talked about the importance of ranking the severity of your payments in terms of what you can live without. In the case that you’re unable to pay off everything at once, it’s time to prioritize in order to face the least financial consequences.

Creating a personalized bill hierarchy has been a true blessing when it comes to wrapping my head around which payments are at the top of my priorities list! The bill hierarchy comes from the book Adulting: How to Become a Grown-Up in 486 Easy(ish) Steps by Kelly Williams Brown.

We’ve featured Adulting: How to Become a Grown-Up in 486 Easy(ish) Steps by Kelly Williams Brown in a review before.

A photo of the Bill Hierarchy example in Williams-Brown’s book, Adulting

Bridget loaned me her copy (and then I moved across the country … Oops!) and it’s easy to see why it draws so much attention. It’s a fun, helpful read, especially the finance section. In which, Williams Brown talked about the idea of a hierarchy of bills (above), stressing the importance of “your own internal order of who gets paid, first to last.” This is an interesting way to look at your expenses, because usually we let the service provider dictate when they’re getting paid.

Williams-Brown explains the consequences of paying a late bill can be even worse than the bill in the first place in some situations, and so messing up this order can cost you big. 

Add “Personalized” to your Bill Hierarchy

Throughout the last year, I’ve had to make tough decisions on which bills to pay time and time again. I started with the hierarchy in Adulting to try to approach this intelligently. But I’ve since found that making personalized alterations and adding specific payments has been even more helpful!

Each person has different money priorities. The bottom of your bill pyramid should be things that you need to pay in order to keep yourself alive, but after that, the order can vary drastically. 

I recognized that priorities are essential, especially on a tight budget. But I also knew that my financial situation is leagues away from most anyone else’s. So I got to work thinking up my own personalized bill hierarchy. It ended up being the most precise for me to categorize my bills and spending in the following categories:

Essential Bills form the base of your pyramid

First things first, keep yourself alive. These are things you can’t live without.

This base of your bill hierarchy can change from person to person, but for me this encompasses my rent and my groceries. That’s it! My grocery bill is stripped of any frill. I count coffee, alcohol, sweets, etc separately, but my rent includes water, gas, and electricity.

Your personalized bill hierarchy is all about the foundation. Ensuring a strong foundation here means that you are considering your safety and future first when it comes to personal finance. Your spending habits and monthly budgets should be a step after essential bills are paid!

Additional Bills

These are things that are still monthly payable and necessary, but things that can be late with fewer consequences. My additional bills include renter’s insurance, my phone bill, and my internet bill.

This doesn’t mean they’re of no consequence, though. If I’m late on my rent, it could have a significant impact on my living situation. This could also loom over me in the future, as a landlord doesn’t want to resign someone who has a tendency of being late on rent! But if I’m late for my phone bill, all that happens is I have a bigger bill next month. That’s really the only consequence. You don’t want overages, so it is a priority, but these services can be lived without or at least skipped once if you’re in a pinch.

Pay off your Debt

I call the next section of my hierarchy the “pay your fucking debt” section in honour of one of my favourite MAG articles. Debt is sure to negatively impact your long-term financial wellness. It can easily cost you thousands over time. So reducing debt should be as far near the top of your priorities list as you can put it!

I’m not yet graduated, so I don’t have to pay off my student loans yet. But I do have a good amount of consumer debt, and make sure to at least make my minimum payment on my credit card every month! As of now, this is the only bill in this section.

Make More Money

The most important thing to invest in is yourself! Any purchase or subscription that I feel directly increases my work performance is automatically more important to me than day-to-day spending.

This is a section with a lot of potential for change as it’s really reliant on personal opinion. I spend a lot of money on weed! But it gives me a good night’s sleep and when I go without it, my quality of work plummets. Because of this, I include my cannabis purchases in this section of my personalized bill hierarchy.

At first I debated including this, but it’s my hierarchy! You make your own! Yes, it’ll be very different. That’s my point! Feel free to include similar purchases that you make that you feel you need in order to do your best work.

I’ve also included online subscriptions that I need to maintain for work. Without the specifics, this includes copywriting services, paid commission work, and domain charges! Essentially, anything I could write off as a “business expense” I pile into this section. I also included my monthly transit pass, as I only ever leave the house to go to class or business meetings.

Fun takes the top!

I don’t quite mean “spend the rest of your money” when I say the top section is for fun! This more encompasses sporadic, worth-while, small purchases. If your budget is tight, this is the area you should cut down on!

My fun section includes my Crave subscription, my monthly bottle of wine, and any shopping I need to do, like personal items or hygiene!

And thus, my personalized bill hierarchy was born

My personal bill hierarchy!

A huge sense of relief comes with a systematic priorities list. It makes a big difference when you don’t have to pick which bills to pay first each month!

Personalized bill hierarchy: Emphasis on personalized

There are a lot of things that can make your personalized bill hierarchy vary drastically from mine. As far as the hierarchy foundation goes, you could be lucky enough to live rent-free. Or you could consider cable an essential bill (no judgement). 

But it’s more likely for these differences to occur somewhere in the very complex middle ground. Do you consider your transit pass a tool for financial growth? Is your debt under control, or do you have so much debt that it needs to take an even higher priority? Do you include things like coffee and alcohol in your groceries? Are you like me and see cannabis as a key to success, or does something like that seem foreign in someone’s monthly budget?

Personal preference, whether or not utilities are included in your rent, and family situation are all bound to affect this hierarchy. That’s exactly why I encourage you to create your own! Understanding your priorities can be life-saving when you’re faced with the position of not being able to pay for everything.

Sometimes tough choices must be made! And the more familiar you are with your monthly bills, the easier it becomes to takes these decisions with confidence. 

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About Author

A professional writing student at York University, Toronto. A newbie in the world of personal finance, but writing with MAG I've got the perfect teacher! Literary nerd, writer, and coffee enthusiast.

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