Comprehensive Guide on How to Budget Money on Low Income
Budgeting on a limited income can be tricky. Setting and sticking to a budget when there is not enough money can be challenging. It’s often difficult to figure out how to manage with tight financial restraints.
With living costs and debt increasing, many individuals struggle to make ends meet. But we are here to offer helpful guidance in budgeting effectively and making the most of available funds.
Read on for proven strategies and tips to help you make ends meet even on a low income!
Table of Contents
Guide on How to Budget Money on Low Income
1.) Evaluate your Financial Situation
*Prepare your bank account statements or records on how much you got paid and expense receipts.
Income
Evaluating your finances is a crucial step toward financial stability and how to budget on a low income. Knowing the amount of your monthly income provides an accurate assessment of your financial health.
Start by simply pulling up and reviewing your account statements. It’s a detailed record of the money deposited and withdrawn from your account.
Establish how much of your take home pay you make each month, as well as any recurring sources of revenue. Total your income for each month to 6 – 12 (You choose the number of months in between), not including the current month.
Expenses
Tracking your monthly expenses is the next essential step to evaluating your financial position. Doing this can provide an eye-opening look into where your money goes each month and highlight areas where you can reduce spending and save money.
Start with your fixed expenses or necessary expenses, such as rent/mortgage, utilities, and groceries. Then, identify non-essential expenses such as entertainment, eating at restaurants, travel, etc.
Follow the same steps with income by adding each month’s expenses before 6 – 12 months. Separate them as living expenses total and non-essential expenses total. Doing this will show how what your spending habits are between the two.
Net Total
The last step is to determine the net total, which involves taking the whole monthly income and deducting it from the total monthly expenses.
Total Income (Month) – Total Expenses (Month) = Net Total (Month)
Review each month to see the total money you have left so that you can budget money.
2.) Remove Unnecessary Purchases and Lower Costs
The next stage in creating a budget is to eliminate unnecessary purchases now that you are aware of your spending patterns and the money you still have left over.
It may seem like you can’t live without that daily coffee or expensive gym membership, but these little expenses can add up quickly and will significantly save money in the long term.
Consider each expense carefully and assess if it’s essential, note what can be adjusted, and make changes that will help manage your finances more efficiently. Even minor adjustments will make a huge difference.
- Takeout and Dining Out
- Coffee (Make home made coffee)
- Car Payment (Depends if required to travel for work or more feasible to alternative transport)
- Bottled Water
- Unused Subscriptions
- Brand-Name Products
- Luxury Goods
- Latest Technology
Besides cutting back on unnecessary purchases, you can reduce your monthly expenses. These include variable expenses like utilities and groceries, which can vary in cost each month. You have more control in lowering the costs for these expenses.
- Comparison shopping
- Research discount, deals, or used items
- Lower electricity bill by turning off electronics and using energy-efficient products
- Frequently cook at home
- Buy food in bulk
- Use public transportation or bike to save gas and maintenance on your car
- Negotiate billing on insurance or internet services
Creating a budget plan that eliminates unnecessary purchases and lowers monthly expense costs gives you more breathing room and more money back.
Account for unexpected expenses from medical bills, car repairs, home repairs, or job loss. Lowering your expenses save money as an emergency fund for these situations, as emergencies happen. Take time to evaluate each of your expenses and see whether they are essential or not.
3.) Creating a Personalized Budget
You’ll have a clearer picture of your personal finances and be able to prioritize your expenses if you create a budget tailored to your demands and income.
Budgeting requires careful thought. Each person has their financial circumstances that differ when creating an effective budget plan; take some time to explore various approaches and find one that best suits you.
Below are popular budgeting methods to help allocate your finances.
50/30/20 Budget
Many people have achieved their financial goals by using the 50/30/20 monthly budget.
The rule has you allocate 50% of your earnings to necessities such as rent/housing costs, groceries, and transportation.
Next is 30% on non-essential items like entertainment, dining out, and clothes. The remaining 20% will be for debt payments and savings.
This budgeting method ensures you can cover your essential expenses while allowing for some flexibility in your spending. Everyone has unique finances, so adjust the percentages as necessary to fit your specific needs.
Envelope Budget
The Cash Envelope Method has become increasingly popular as another approach to budgeting.
You assign a specific amount of cash for different expenses such as groceries, eating out, entertainment, clothing, etc. Best suited for variable expenses than fixed expenses, where you do not know how much you’ll be spending each month.
The cash is stored in separate envelopes, and as you spend money for specific categories, remove the money from its respective cash envelope. You will refill the cash envelopes to the specific amount after one month.
This system can help keep you accountable and aware of your spending habits. Plus, physically seeing the cash you have left in each envelope can be a great visual aid for sticking to your budget.
Using this budgeting method requires careful determination of how much money should be allocated for each expense. It may seem challenging, but this method can improve managing your finances and make saving money more achievable, even on a low income.
Pay-Yourself First Method
A proven effective strategy to budget your money is the Pay-Yourself First method.
Encourages individuals to prioritize their savings before spending their money on other expenses. You set aside a portion or percentage of your income into your savings account or investment account before using the remaining amount for bills and other necessities.
Following this habit will gradually increase your financial stability and more towards your savings goals. Even small savings can add up over time.
60% Method
A simple budget allocation of 60% of your income goes toward essential expenses. The remaining 40% is split between savings and discretionary spending (You choose the percentage however you want, 20/20 or 30/10).
Necessities should come first, and discretionary spending is after the essential expenses have been taken care of.
With the 60% method, you can avoid overspending and help create more manageable finance, even with a limited low income.
4.) Free Resources For Low Income
Budgeting on a low income can feel stressful, but some government or non-profit programs offer free services to lower living expenses or, if qualified, are free.
Free Resources:
- Housing Assistance: Section 8 housing vouchers can help low-income individuals and families afford safe housing.
- Financial Counseling: Non-profit credit counseling organizations can provide free advice on reducing debt and managing money.
- Healthcare Assistance: Medicaid provides healthcare services at no or low cost for low-income families and individuals. Free clinics and community health centers also offer these treatments at no or low cost.
- Food Assistance Programs: Check out the Supplemental Nutrition Assistance Program (SNAP), Women, Infants, and Children (WIC), and local food banks for food aid programs.
- Job Training: Numerous cities provide training programs designed to equip low-income individuals with skills necessary for finding higher-paying work.
By taking advantage of these resources, you can make your money go further and work towards your financial goals.
5.) Personal Finance Budgeting Apps
Many personal finance budgeting apps provide various features, including tracking expenses, creating budgets, as well as tips for saving money.
Apps such as these enable low-income individuals to take control of their finances and stick to a tight budget.
Personal Finance Budgeting Apps:
Mint – Best Finance Overview
An overall view of your finances. From budgeting, bill tracking, and credit score monitoring, and offers personalized insights.
Price – Free
PocketGuard – Best for Avoiding Overspending
Simple real-time view of how much you have left of the income you made. Accounts for your income, expenses, and financial goals in the calculation.
Price – Free
Premium Features – $7.99 per month / $34.99 per year/ $79.99 Forever
You Need a Budget (YNAB) – Best for Strict Budgeting
A proactive approach where every dollar has a purpose. Income is allocated to a specific category before you can spend it.
Price – Free 34 Day trial
Premium Features – $14.99 per month / $99 per year
GoodBudget – Best for Couples/ Prefer Envelope Method
Uses the envelope budgeting method of putting your money into virtual envelopes in different categories.
Price – Free
Premium Features – $8.00 per month / $70.00 per year
Spendee – Best for Cash Users
Manually track money spent using cash and supports shared wallets with other people from family, partners, or friends.
Price – Free
Plus Plan – $1.99 per month/ $14.99 per year
Premium Features – $2.99 per month/ $22.99 per year
6.) Staying Motivated on Your Budget
Sticking to a budget requires tremendous discipline and determination to avoid impulsive purchases and to prioritize your needs over wants. It is essential to stay motivated, or you won’t stick to your budget.
Set realistic financial goals and stay committed to meeting them. Picture the reason you want to budget and what result you want to achieve by staying on track. Start with achievable short-term goals and celebrate small victories along the way.
Get a friend, family member, or financial advisor to hold you accountable. You will feel more encouraged to keep budgeting. With these strategies, you will be motivated and committed to budgeting.
7.) Strategies to Move out of Low Income
Moving out of low-income status will take effort and determination to increase your income.
One strategy you should consider is to improve your education and skills. Investing in yourself through courses, certifications, or even a higher degree can help increase your earning potential and open up new job opportunities.
It’s where your savings account or a percentage of your emergency fund can help pay for your tuition. Also, there are programs to help pay for college without repayment by applying for Federal Student Aid (FAFSA) for eligibility.
Another strategy to consider is to look for other streams of income. Make extra money by doing freelance or gig jobs, part-time work, or starting your small business.
These activities may require additional time and effort but could provide you with the financial security to break free from low-income status.
Stay committed to your budget plan and continue to make adjustments when necessary. It will take time, but having dedication and effort, moving out of low-income is possible.
FAQ
How Do I Stop Living Paycheck to Paycheck?
Living paycheck to paycheck can be a stressful situation for many individuals. It can make it challenging to maintain stability and cover unexpected expenses.
Start by making a realistic budget and sticking to it. Make sure to prioritize your essential expenses before spending any money on non-essential items.
Consider finding ways to increase your income, such as looking for opportunities to work overtime or starting a side gig.
It’s important to save money and establish an emergency fund for unexpected expenses. You can also reduce debt by consolidating your bills and establishing a payment plan for each one.
It may require some time and effort, but breaking the cycle of relying on each paycheck is necessary to achieve future financial stability.
Closing Thoughts
While it may seem intimidating, creating a budget plan doesn’t have to be complicated or overwhelming but empowering.
As long as you remember that this isn’t only about numbers but also about reaching your desired life outcomes, you can make it possible!
Ready to create your budget plan? Implement strategies from our guide now and start taking control of your finances today!
