Personal Finance Funnel

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? Prioritizing your finances can spur a lot of confusing questions.

We’ve created a step-by-step funnel that will help categorize life’s expenditures and prioritize your budget to cover them all appropriately. Use this guide to better understand your personal income flow and how you can better balance to your finances.

The finance funnel flows from the top, where you have your highest priorities, down to the bottom, where you have your 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 start your journey through the financial funnel, take account of your most basic needs: housing, food and basic necessities. You can also use a spreadsheet or app to help thoroughly categorize your spending. Your basic budget should include the following:

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

Level 2: Emergency Funds

Once you’ve accounted for the absolute basic needs of a usual day, you need to prepare for the needs of an unusual day. Building emergency savings is a great way to make sure that unexpected expenses don’t disrupt your normal budgeting and throw everything off. Just like any goal, you want to start with an achievable target and 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 401 (k) savings in any way?


If no, skip to level four.


If yes, confirm the exact percentage they’ll match. 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. 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. They are often credit cards and personal loans. However, car loans and mortgages do not fall into this category.

If you don’t have high-interest debts, consider allocating extra funds to your emergency fund savings and increase 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. You ideally want to pay them off as quickly as possible to help minimize 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 retirement savings, etc. These are savings goals that are very large and need years’ worth of financial contributions.

If you don’t have a 401 (k) through your employer, look into an Individual Retirement Account (IRA), a tax-advantaged individual savings account. If you do have a 401 (k), you could still benefit from opening an IRA — a mix of both has it’s benefits, especially if you need to leave your empoloyer at any point.


If you’re looking to make a large purchase with long-term savings, there are a number of ways to get there. Here are 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 a brilliant budgeter. Great job! You manage your money wisely and are able to still have some left over. You can always allocate these extra funds to one of your existing savings plans, or you could explore one of these options:

  • Learn about the stock market and diversify your portfolio.
  • Start a savings account specifically for your next vacation.
  • Invest in home improvement projects around your home to increase its value.
  • Take a class to contribute to your career advancement or improve your skillset.


When it comes to budgeting, not all purchases are created equal. Make sure you are prioritizing your paycheck 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, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.


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Written by:

Barbara Davidson

Babs is Lead Content Strategist and financial guru. She loves exploring fresh ways to save more and enjoy life on a budget! When she’s not writing, you’ll find her binge-watching musicals, reading in the (sporadic) Chicago sunshine and discovering great new places to eat. Accio, tacos! 

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