How to Prioritize Your Budget Allocations - dummies

How to Prioritize Your Budget Allocations

When you look at your financial situation, try not to get bogged down in details — look at the big picture. There’s an easy way to sift through what seem like competing priorities to determine the top ones, and that method involves a few key numbers: your net worth, your income, and the amount of debt you carry.

To get your net worth, add up all your assets, which are, in broad terms, your money or the things you can convert to money. These include:

  • Savings

  • Investments in the stock market

  • Any businesses you own

  • Any real estate you own (the current value, not what you paid for it)

  • Other valuable possessions that you can sell, such as jewelry or a car (the current value from the Kelley Blue Book, not what you paid for it)

Now, categorize your debt as good or bad. Bad debt is any high-interest debt and usually includes the following:

  • Credit card debt

  • Car loans

  • Consumer loans that charge high interest rates and are not tax-deductible

Next is your good debt, which typically includes the types of debt that are taken on as an investment for your future:

  • Student loans

  • Mortgages

  • Business loans

Enter these numbers, plus your income, into the calculator below to find out your top financial priority and prepare your budget to address your biggest concern.