If you are confused about the order in which paths are searched, here is a simple list for resolving the location of applications.menu:
1. Search each directory in $XDG_CONFIG_HOME in order to find menus/applications.menu. If $XDG_CONFIG_HOME is not set, it defaults to the ~/.config/ directory.
2. Search each directory in $XDG_CONFIG_DIRS in order to find menus/applications.menu. If $XDG_CONFIG_DIRS is not set, it defaults to the /etc/xdg/ directory.