How to Create a Budget on a Low Income
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When you have a lower-paying job, reaching your financial goals can feel overwhelming. We promise: It’s possible. Wondering how to budget money on a low income? It takes more planning and accountability to control where your money goes. Use our tips to save where you can and still find ways to pay down debt.
Why Budgeting While You Are on a Low Income Is Important
When you have a lower income, you have less leeway in your budget. You need to plan for every dollar. Budgeting covers the things you need and plans for the items you want. Without budgeting, you may assume you have enough money to attend a friend’s wedding or splurge on a fun vacation, but when you look at your bank account and bills, you realize that money should go to utilities or rent. Plus, budgets can create safety nets, like emergency funds, to catch you if you encounter an emergency.
Steps to Setting up a Low-Income Budget
Creating a budget looks the same no matter how much money you make. Your biggest challenges may be figuring out how much to put toward your savings and paying down debt.
First, list out your monthly post-taxes income and all expenses. This might include:
- Mortgage or rent payments
- Utility bills
- Groceries
- Car payments
- Insurance payments
- Cell phone bills
- Childcare costs
Divide what is left from your monthly income minus expenses between savings and debt payments, such as credit card bills.
Notice the list of expenses doesn’t include things like streaming subscriptions or eating at restaurants. Those are needs, not wants, so you have to adjust your budget to afford them. That could mean trying to save on utility bills by using less energy or finding a lower-cost cellular provider. Making room for those extras helps you avoid budget burnout.
Budgeting Methods That May Work Well for Someone on a Low Income
Finding a budgeting method that is right for you depends on your income level and unique circumstances. Whatever method you pick, stay accountable by making a budget binder to track your budgeting for the long term.
- As a single person, paying your first budget may work for you. It prioritizes savings. You first decide how much of your monthly after-tax income you want to put toward savings. Then you spend the rest on your necessities.
- If you have a partner, consider the cash envelope system, which ensures you never spend more than you have because you use actual dollars for your accounting.
- As a single parent, budgeting can be challenging. The 50-30-20 rule may work for you because it separates expenses into 50% needs, 30% wants and 20% savings. It can help you become more aware of your financial habits, limit overspending and start saving more for you and your kids.
- If you and your partner have kids, the cash envelope system can help allocate your money into spending categories (envelopes) that make sense for you and your family. When the money in that envelope is depleted, you’re done spending it on that category for the month.
Tips for Covering Expenses If You Don’t Have Enough Money in Your Budget
Here are a few ways to find wiggle room in your monthly budget:
- Preschedule bill payments using digital banking to avoid paying late fees.
- Follow a debt repayments system, like debt avalanche or debt snowball, to knock out debt faster and reduce interest payments.
- Add a side hustle to earn extra money.
- Clip coupons for groceries.
- Do minor home renovations yourself.
- Pack lunch for work rather than eat out.
Budgeting benefits everyone. Explore our digital banking options to find more ways to track your income and automate savings within your new budget.
