If your monthly income is on the low side, it can seem impossible to develop and stick to a budget. It can seem like the minute money comes into your house it disappears twice as fast. The good news is you can create and live on a budget regardless of income, so if you’re asking yourself how to budget money on a low income, stick around to find out just what you can do to make it possible.
How to Budget Money on a Low Income
If you’re living month-to-month or barely getting by, a budget may not sound possible, but in reality, it can help you improve your financial situation.
The key is to create a budget that works for you. Forget everyone else. No two people or families have the exact same situation.
Don’t worry about what others are doing.
Create the perfect budget – for you.
So, how do you do this?
Follow these steps.
1. Know Your Expenses
It’s impossible to create and maintain a budget regardless of your income if you don’t really know what your expenses are.
If you’re living paycheck to paycheck, you might be paying bills as they come in without even really thinking about them.
You’re just happy you have the cash to pay the bill.
However, if you want to meet your financial goals, you need to start here and have a good understanding of where your money is going each month.
So, here’s what you do. Make a list of the following:
- Rent or mortgage
- Car Payments
- Car Insurance
- Gym membership
These are all fixed costs for you meaning they pretty much stay the same every month. You know the monthly costs.
You will also have expenses that will change each month, but if you track them you can get a pretty good idea of your monthly expense.
These include things such as:
- Utilities – heat/ac, electricity, water, garbage
- Gas for your vehicles
- Misc expenses
You then also need to think about your debt payments. These can include:
Your budget doesn’t need to be anything fancy. Just make a list of all your monthly expenses and then add it up.
Hopefully, you will find that even on a low income you have more money coming in every month than going out.
If not, then you will need to trim back.
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2. Determine Your Essential Bills
A lot of these expenses I’ve mentioned so far are essential. That means you need them to live.
If you find that some of your monthly bills aren’t essential, then you will want to consider getting rid of them.
That can be things such as cable TV and a landline phone. If you have a cell phone, then there is a high probability that you will not need a landline phone. A streaming service can replace your cable and save you a lot of money.
If you have a gym membership you should consider getting rid of it as well.
Walking or running is pretty much a free activity except for buying shoes.
You can also buy some free weights for a little bit of money and work out at home.
3. Cut Out Unnecessary Expenses and Spending
Now that you have a good idea of your necessary expenses and bills, you need to figure out how much you purchase on a day-to-day basis.
This can be things like going out to eat, grabbing a coffee on the go, or even going to the movies.
When I was trying to figure out my spending habits, I carried with me a little notebook. I wrote down everything I bought and how much I paid for it even.
Even it if was just a few cents, I still wrote it down.
You don’t have to do this forever. It is a short term activity, but give it a couple of weeks or even a month.
You’ll be surprised just how much money you spend without even realizing it.
Once you know what you’re spending money on, you can now decide if it is worth it to you or if a purchase is worth the money you are spending.
Just doing this can really free up some extra money each month.
The thing about a budget is that it doesn’t mean your life has to suck when you live on one. It also doesn’t mean you can never do any of the things you enjoy.
In fact, even living on a tight budget can give you a sense of freedom.
You will know what you need to cover any monthly payment and what you have left to save and to spend on the fun things in life.
You can then buy that cup of coffee or go to the movies and enjoy it without feeling guilty for doing so.
4. Lower Your Living Expenses
What happens if after you have added up all of your expenses and cut out unnecessary spending, you don’t have enough money to cover your bills let alone save any for a rainy day?
If that’s your situation, then you are going to have to bite the bullet and lower your living expenses.
The big one here is your housing costs. If you can lower these then you will be well on your way to reducing one of your biggest expenses.
There are a number of ways to do this. You can:
- Rent out a room
- Get a roommate
- Rent a room from someone else
- Move to a less expensive area
- Downsize from a two-bedroom to a one-bedroom apartment
Any of these options will also reduce your monthly utility costs as well.
For a low-income family, food costs can be an issue as well. Take a look at your food budget and see where you can save on grocery shopping. You might try:
- Meal planning
- Shop only once a week
- Shop out of your pantry one week per month
- Always make a list
- Cook more
- Buy less prepared food
Cooking from scratch always saves money and the family will enjoy the tasty meals that you come up with. Here are several ways to save money on grocery shopping and 14 mouth-watering ways to feed a family.
Not to mention, if you take lunch from home with you daily your lunch costs will go down as well.
5. Build Your Emergency Fund
Once you have your budget under control and you have a little extra money, you need to create an emergency fund.
Even if it is only a thousand dollars, this cushion of cash will help you if you do have an unexpected expense.
It will also keep you from having to use credit cards or borrow money from family if something comes up.
Start with $1,000 dollars and then work your way up to 3 months worth of expenses.
Trust me, you’ll sleep better if you do, and don’t worry if this takes you a while. The important thing is to just keep at it.
6. Tackle Your Debt
Now that you have your budgeting strategy down and an emergency fund, it is time to tackle your debt.
Credit card debt should be paid off first. Getting your credit cards paid off with help a low-income budget more than anything and certainly improve your financial circumstances.
Credit card accounts are typically high-interest debt which is why they need to be paid off first.
Start with the card that has the lowest balance and get it paid off. Then go to the next and pay it off and use the money that you would normally pay on the first one and add it to your payment on the second one, and so on and so forth.
If push comes to shove, you can even use a personal loan to consolidate all of your credit cards. Then you will only have one payment at a lower interest rate.
Just be sure if you go this route that you stop using your cards once they are paid off.
7. Add Extra Income
You can also add additional income to improve your budget. A side gig can bring in a couple of hundred dollars a month or even thousands of dollars.
It all depends on the effort you want to put into it.
This extra money can help you pay off your debt, increase your savings, and even give you extra money for travel or whatever fun things you enjoy.
To Sum it All Up:
For low-income households, it can be tough to come up with a budget and stick with it. However, not having a budget can lead to financial stress. You can change your financial life for the better, but it will take some tough decisions. Use these tips to create a budget that works for you, and you will find that money management will be easier and your quality of life will increase.