Financial freedom requires knowing the difference between what you want and what you need. But sometimes it’s difficult to see these areas of your life clearly. So today, I’m going to give you a practical guide to help you understand what your real needs are so you can prioritize your spending accordingly.

There are four main categories of needs in your life, and we’re going to talk about common expenses within each of these categories. We’ll discuss them in order of importance. And if something doesn’t appear on any of these lists, you can probably live without it.

To prioritize your spending and reduce financial stress, it helps to break your expenses down by categories. Here are your four most important expense categories, listed in order.

1) The Essentials

If you’re in a financial emergency, these are the things that you need to focus your spending on. Other things in life can wait, but you can’t ignore these expenses.

• Food – You and your family have to eat. You don’t need fancy food, but you do need to make sure everyone who depends on you has enough to stay healthy.
• Utilities – Pay for lights, water, heat and air conditioning after you buy food.
• Transportation – You need to get back and forth to work, to the doctor, etc. This can be public transportation or a modest car and gas.
• Clothes – Make sure you have clothes for work, your kids have clothes and shoes that fit, and that everyone has something warm in winter.

2) Major Expenses

If you’ve already covered the essentials, this is what you should buy next:

• Housing – You need a safe place to live where you and your family can feel at home.
• Health Care – Going to the doctor can be expensive, and you might be tempted to skimp on medical care to save money. But ignoring small health problems now can lead to bigger, more expensive problems later.
• Insurance – Health insurance makes medical care much more affordable. You also need insurance for your car and your house, as well as life insurance.
• Education – If you have kids in school, you will probably need to buy some supplies, books, clothes and other things to help them succeed.

3) Annual Expenses

This category includes some things you might not think about regularly, but they’re important expenses. Keep these in mind as you budget.

• Taxes – If you think you’ll owe taxes to the government when you file your taxes, save up in advance to pay the bill when it comes due.
• Vehicle Registration – If you own a car, you’ll have to pay to renew your license or registration every year. We’re going to set money aside for this as well.
• Membership Dues – If you’re a member of a professional organization, a neighborhood association or some other group that requires annual dues, you should set some money aside throughout the year to cover this cost.

4) Debt Payments

If you have covered your family’s essentials and major expenses, you need to make payments toward your debt. Since debt holds you back from financial freedom, you should use any extra money you have to pay it off.

Getting your finances in order isn’t easy. But once you learn the difference between what you want and what you really need, you’ll be well on your way to reducing financial stress and building a prosperous future.

To experience financial freedom, you have to prioritize your spending.