3-Tiered Budgeting Approach Will Guide You To Debt Freedom


iered budgeting approaches are needed to reflect different life stages. Notably, folks need a tiered budgeting approach when in debt. However, the valid question I hear often is this: How do you budget when mired in debt? You know you have expenses reduced to the limit. Fluff is gone. Still, your financial advisor tells you budgeting is the absolute, orderly path to debt freedom. How do I do this and remain sane?

Tiered budgeting Approach Reflects Different Life Stages

Try this three-tiered budgeting approach to emerge from debt gradually, with a strong foundation:

  1. Sacrificial
  2. Sustaining
  3. Supplemental

Money management is lifestyle management. You must adjust your lifestyle to get out of debt. Take a few steps back now. Understand that this journey out of debt could be long and slow.


Deep in Debt - Be Cautious
Deep in Debt – Be Cautious

Living in a sacrificial bubble is the most challenging place to be. Deep in debt, unable to do what you want, persuaded, you sacrificed completely, and you know today’s expenses exceed your income; Be cautious! The sacrificial living level means spending, including debt repayment, below your income, consistently. It means a reassessment of needs and wants to focus on “must haves” only. To start, you need to review the previous three-months’ spending. Second, track spending for one month. Third, set a goal to adjust your lifestyle to the level your income will support. From this review, list items you must have to survive, to be ethical, and to be legal. These items alone will be in your sacrificial budget:

  1. Basic groceries (eliminate pop, chips, junk)
  2. Essential transport
  3. Basic housing
  4. Essential health care
  5. Essential communications

Many people’s sacrificial budgets exclude these items:

  1. Eating out
  2. Clothes
  3. Books
  4. Pets (This is tough to do, and highly personal)
  5. Vacation
  6. Paid entertainment: cable, satellite

Folks will tell you to use coupons. Be cautious: use them for needed items only. Don’t let them drive your spending. If you own your home and the market value exceeds your mortgage, consider selling it, repaying debt, and starting over. Next, rent and save at least 20% down payment to buy a home. If your mortgage is more than the market value of the house, work with your financial firm to get help, don’t walk away.

Sacrificial Budgets Are Bare Bones

Sacrificial living can be lonely. Consider joining an accountability group, Bible study group, or another small group. Accept your condition. Don’t grumble. Living with a sacrificial budget is an opportunity to learn, grow, and later to help someone in your current position. Keep a journal to record progress, challenges, and setbacks.

Time spent in this phase will depend on your attitude, commitment to it, and your indebtedness. Living here will be inconvenient and challenging because you must sacrifice and forego conveniences. When the fridge, washing machine, or other appliance breaks, you can’t spend to fix or replace it. Your mantra must be: I cannot afford more debt; I am at my limit. I must be patient, humble, creative. As you become comfortable–realistically, less uncomfortable–living at this sacrificial level, your attitude to spending will change. You will notice you need fewer clothes; you will eat out fewer times, and you won’t follow the crowd to upgrade.

When do you graduate from this stage? When you accept and can live consistently, though uncomfortably, in your income, including repaying debt, and you repay consumer debts.


Tiered budgeting is like traffic signals
Tiered budgeting is like traffic signals

The second level, sustaining, is where you want to build a solid foundation. It is  where you fix a sustainable lifestyle without borrowing. For everything except a home, pay cash, or use a credit card and pay the full monthly balance.

To your sacrificial budget, add specific discretionary items ensuring total expenses are less than 85% of regular income. Save another 10% of regular income in a capital fund to replace items with a life longer than two years, and for major repairs. Build this account to buy big-ticket items without debt. In the first year in this level, save the remaining 5% of regular income for emergencies.

This is the level you want to operate even in difficult times. The key is to be steady in the good times, and avoid splurging. Most of all, be passionate about living at this level. You must decide when to spend; never allow cheap financing to seduce you.


Ah, here comes the good life. You’re confident you are maintaining a steady spending level. You are planning significant discretionary spendings, such as big-screen TV, boat, or hobby items, and paying for big buys from your capital fund. In the supplemental phase, you add “nice-to-haves” without incurring debt, and without using funds saved for earlier stages.


Debt causes loneliness and inconvenience. And the getting out of debt process can be frustrating, and time-consuming. But it could start permanent, invaluable lifestyle-control lessons. However, this the three tiered budgeting  path will help to minimize frustration and time. I know it is effective; I have seen it in action. Try it; the solid foundation is an invaluable base to build on.

© 2012, Michel A. Bell

Michel A. Bell

Michel A. Bell is a former senior business executive, author of seven books — including his first children's book published in 2022 — speaker, and adjunct professor of business administration at Briercrest College and Seminary. Michel is a Fellow of the Chartered Certified Accountants (UK), holds a Masters of Science in management degree from Massachusetts Institute of Technology and a Doctor of Business Administration honoris causa from Briercrest College and Seminary. He is founder and president of Managing God's Money™ and Stewarding God's Resources.

One thought to “3-Tiered Budgeting Approach Will Guide You To Debt Freedom”

  1. Thanks for the great write up. Really like the content. I’ll be a regular reader. Thanks again!

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