Not many of us know how to budget money on low income. We always think budgeting, or saving, for that matter, is for people with larger incomes or people who are simply paid better. What we have isn’t even enough for our basic needs; how can we budget and save on that?
Let me know if any of this sounds familiar.
- I’ll save more once I get that promotion and raise.
- I’m living hand-to-mouth as it is; what is there to budget?
- My paycheck is too small for a budget to make a difference.
If these thoughts have ever crossed your mind, don’t be ashamed. We’ve all had them. Even some people who are, to the rest of us, born with a silver spoon in their mouth often complain of not having enough money for everything they need (although in their case, I’m pretty sure that “need” easily qualifies for “want”).
Budgeting on a Low Income
If you know me, you know I am all about maintaining a strict budget. It’s not because I am stingy or miserly; it’s simply because I have been under a mountain of debt before and do not wish to go back there.
Also see: How to budget when you’re broke
Every tip I share here is designed to help you get out of debt. Most of it won’t be easy to do, but if you stick with it, your financial situation will be much better than it is now.
I’m not saying you will be a billionaire; I’m just saying you will have more financial stability and be in a better position in terms of debt management, bill payments, monthly income, and you may even reach your savings goal.
With that in mind, here are some tips on how to budget money on low income.
Take a Financial Inventory of Your Life
In any budgeting exercise, this has to be the very first thing you do. You must take inventory of your financial life. This involves:
- Making a list of your income (all of it, including irregular income)
- Making a list of all your expenditures (even things that seem trivial, like buying yourself a pair of socks)
The idea is to get a good look at what is coming in and what is going out. Your income can include anything like:
- Side hustles
- Part-time or overtime pay
- Child support
For those who work purely on commission, the best approach would be to make a list of how much you’ve earned per month over the last 6–12 months. Take your least-earning month as the benchmark. After all, things can only look up from there.
Once your budget is based on that low-paying month, anything you make that’s extra can either go to your savings or pay off debt.
Make a List of Your Expenses
The problem with expenses is that they can run wild if you aren’t careful. While wisdom dictates that you track every expense (that way you will know where the financial “blackholes” are), when making a budget, sometimes you won’t get them all on the first go, and that’s alright.
Just make sure to get the big ones, and then keep building on that list as you go. This means that once you decide to take inventory of your financial life, keep a list of everything you spend money on from then on. In a couple of months or so, you will begin to see your spending patterns.
Budget for the Basics
Again, your budget won’t be as comprehensive as you would like it to be on the first go; you will build it better as you go. For now, start with the basics, or the big ones. These include:
Write it all down: how much you spend on your rent or mortgage payments; how much you spend on food, gas, electricity, water, and so on. These are your basic needs and bills that simply cannot be foregone.
Once you are done with the basics, it’s time to make a list of other expenses, including:
- Debt repayment, such as credit cards
- Childcare for moms like us
- Insurance (medical and otherwise)
This list will grow at first during the initial months of budgeting as you remember more and more expenses that require the extra money. But then, it should start shrinking somewhere around the third or fourth month as you begin to realize that there are some expenses that are just not necessary or that you can do without in order to save that extra money or reroute it towards other, more important uses.
Find Ways to Save Money
The conventional wisdom would be to find ways to make extra income, and as much as we should all do that, if we don’t find ways to save, we will keep finding ourselves in the same dire financial straits as we are right now and may find ourselves living paycheck to paycheck.
Saving money can be a tricky subject, as it calls for an honest and brutal look into your personal life, living expenses, expenditures, and financial habits. Not very many people like what they see when they look behind that curtain, but it must be done to find future financial stability and to build a healthier bank account.
Here are some tips on how you can save money so your low income budget works and you have some kind of nest egg, savings account, or even an emergency fund at the end of it all:
Look at Your Monthly Subscriptions
And I mean all of them. You may find that you are paying for some stuff you never really use, like your gym membership. Look at all the magazine subscriptions, your cable TV subscriptions, Spotify, and everything else that may potentially be considered an unnecessary expense.
The thing is, most of the things you are paying a premium fee for, like Spotify, already have a rather decent free version available. As for cable TV, with high-speed internet these days, you have access to almost every bit of entertainment you might need. Besides, streaming services like Netflix are often cheaper.
Revise Your Phone Plan
When was the last time you exhausted the minutes on your current plan? If you are anything like me, you will find that it’s never, you don’t need all that; you can either switch to a cheaper one or go prepaid.
Save Money on Groceries
You can save a lot of money on groceries and other types of shopping by using coupons, buying at a farmers’ market, and so on.
The idea is to find ways to spend less money, so you have a bit more to save at the end of the month. This works even for people with low incomes.
Learning how to budget money on low income can be problematic, mostly because it all seems overwhelming at first. One approach for low income families on a tight budget would be to break everything down into smaller chunks. Start by creating a weekly budget and then go from there.