How to Budget Money on Low Income

Unless you’ve managed to set up a trade and barter system for yourself, you need money to survive. It’s not the best part of being an adult, but budgeting is certainly an essential one.

Creating a budget means virtually spending every dollar before you actually spend a single dollar. It’s the act of planning how you will spend and save.

Mapping out a plan is essential to successfully making funds last until the next pay period. Without it, the money just seems to disappear, even before the bills are paid.

While it might be easy to be loose with a budget if your income well exceeds your expenses, that’s not the case for most people.

Generally, the lower your income is, the more challenging it is to stretch those dollars. However, regardless of your income level, you always have power over your money, not the other way around. Say it, “I have power over my money.”

The way to take that power is by deciding where your dollars will go. There’s no right way to go about it, but there are lots of tips and tricks to set you on the right track.

Making Money vs Spending Money

Think of a budget as a scientific scale. If you move an item from one side to the other, the scale tips. The same holds true for a budget. You can either make more money or spend less money to balance it out.

Bringing in more income is hard, but there are ways to go about it with a side hustle. Since we’re in the DIY realm here, you could crochet, sew, make crafts, use woodworking skills to make furniture or bat houses, bake, etc. Sell wares at the local farmer’s market or create a shop on Etsy.

At a local level, you could spend some spare hours as a Doordash or Uber driver, watch a few kids as you stay home with yours, or delve into the world of digital work as a writer or technical support specialist.

If there is an opportunity for a second job, a promotion, or a different, higher paying job, map out the steps to get there so you have something to work towards.

On the other end of the equation is spending less. This is where we’ll spend most of our time because it’s where your power lies. You make spending decisions every day. The key is to be conscious about and in control of those choices.

Pay off Debt

The best first step to take in getting control of your budget on a low income is to pay off all outstanding debt. It sounds counterintuitive, but paying off your debt provides huge financial freedom.

Start by paying more than your minimum payment, even if it’s just a few dollars more. Think about this on a small scale.

You owe someone $100 and you’re making $20 payments per month. It will take five months to pay off that debt. However, if you up your payments to $25, you’ll pay it off an entire month early.

Starting at month five you’ll also have an extra $25 in your monthly budget. If you have other debt, put that money towards it. Using this same example, say your next largest debt is $500 and you pay $50 per month.

At your current rate, you’ll have it paid off in 10 months. But, if you funnel the newly acquired $25 in that direction, your $500 debt will be paid in month seven. That’s power.

Look at Fixed Expenses

While you’re working on reducing debt, see if you can free up some resources by saving money elsewhere. Most of us plug along, sending out payments for the internet service, cell phone, and Netflix subscription without a lot of thought.

Frequently evaluating those payments can result in savings. Remember, every dollar counts, so even $10 savings in a month equals $120 for the year. Call the cable and internet company to see if you qualify for a different plan.

Sometimes you’ll find you’re under contract for a year or two. If that’s the case, make a note of when that period ends so you can negotiate a better deal and take advantage of new promotions.

You can do the same thing with the cell phone company. Don’t get yourself caught in a long-term payment plan with a penalty for early payoff. Instead, buy an inexpensive phone and save up so you can pay cash when it’s time to replace it.

Or, find a monthly plan that doesn’t have an early payoff fee. Prepaid plans are a great way to maximize savings since you’re only paying for what you use. Buying your minutes and monitoring them is less expensive and puts you in complete control.

Also ask all utility, internet, and phone companies if you qualify for low-income assistance. Nearly every service industry has assistance, so take advantage of it. Saving on one line item means you can pay off debt or put money into savings quicker.

Evaluate Variable Expenses

The first place most of us make cuts is in the variable expenses. How deep those cuts are depends on your budget. Think things like entertainment, cable, coffee shop purchases, and gifts.

This is the area of your budget where you have the most control. It can also be where you feel the most depressed. It’s no fun to work just to pay the bills, so be sure you have a little something for yourself.

A $5 coffee twice a month, a trip to the movies, or a dinner out with friends can make all the working and saving worth it. But put it into the budget.

For the sake of easy math, let’s say you bring home $1,000 per month. Your rent is $500. Your utilities, car, phone, and other fixed payments are $300. Your food is and gas is $150 (I know, ridiculously low).

That leaves you $50 for the ‘everything else’ bucket. You then have to make decisions about how you’ll spend it. Start with the calendar. Do you have a dinner function to attend? Is your mom’s birthday this month?

Making a budget work means making some compromises. This is an important aspect of you having power over your money. If you don’t want to spend on the dinner option available, eat before you go and just order a drink or dessert.

If friends suggest an establishment that’s too rich for your budget, suggest an alternative, maybe one with a great happy hour or where you have a gift card to spend.

Pack a picnic and hit the park. Invite friends over for a potluck dinner. You get the point.

As for gift giving, have a conversation. Instead of buying for each friend, ask if they’d like to have a get together instead. Better yet, plan ahead and use your skills to make a DIY gift. It will mean more than a store-bought gift anyway.

Line Item Flexible Spending

When it comes to identifying where your money goes, a financial review is essential. Put it all on paper. Save receipts or go back through bank statements to identify your spending habits.

Create a log for a three month period. Mark down every latte, mini-mart stop, video streaming purchase, and bar tab. It won’t take long to see where you can make spending cuts.

Upon review, tweak your habits. For example, commit to making coffee at home instead of buying it on the go. As mentioned, make your gifts instead of buying them. Go to the hairdresser less frequently. Create date-night in instead of eating in a restaurant.

Cut out Netflix, Hulu, and Prime Video in favor of books from the library, game nights, puzzles, or developing a hobby. Dump the gym and add in daily walks, exercise videos, and biking.

Groceries

For most people, the food bill is the second highest bill in their home. Depending on how many people you’re feeding, it can nearly match your mortgage.

With a bit of discipline, it’s easy to shave costs off your grocery bill. Start by hitting sales. Pick one or two favorite stores and check the ad each week. Buy what’s on sale and stockpile any extra for later.

Perhaps the single most effective way to sculpt your food budget is by planning meals. There’s nothing worse for the bank balance than impromptu grocery store runs with no meal plan in mind.

When making your plan, start with what you already have. Make use of those odd cuts of meat or the open package of tortilla shells. Use up fresh produce before it goes bad.

Another grocery budget hack is to minimize trips to the store. Plan to go no more than two times per month.

Even when the family complains there is nothing to eat, you’ll be surprised what they come up with. It requires some flexibility, but the savings are worth it.

Breakfast for dinner, oatmeal for lunch, a quiche with spinach and tomato, homemade pizza crust and sauce topped with peppers and olives, baked potato bar with broccoli, cauliflower, bacon, cheese, and/or sour cream, or that last box of Hamburger Helper.

The Spreadsheet

If you’re comfortable on a computer, bring up Google Sheets or Microsoft Excel. If you’re more of a paper and pencil person, get out a tablet.

Physically create a workable budget to hold yourself accountable and put the power in your court. Start with your income. Include all forms of income from wages to sales from goods you produce. Put down your Bottle Drop earnings and any other trickle income.

Be sure to use your net income. That means the amount you’re actually bringing home. If your job says they pay you 36,000 per year, you’re probably bringing home more like 31,000, maybe less if you’re also paying into medical insurance and a retirement fund before the money gets to you.

Whatever that number is, write it down.

Next, calculate your fixed expenses. Create a separate line for each one. These are the bills you pay every month or every other month. They include the house and car payment, cable, internet, phone, garbage, power, and any regular debt or loan payments for school, home, personal, medical, or credit cards.

At this point, if you’re already at a negative balance, the reality is you’ll need to renegotiate some of the expenses. Buy a cheaper car, move to a cheaper home, ditch the cable, call the hospital to work out a payment plan, defer school loan payments, etc.

The other option is to make more money through a job change or a second income.

Once you’ve achieved a positive balance after paying your fixed expenses, create a line item budget for each item in your flexible spending.

This should include food, gas, pet supplies, household supplies, home improvement, gifts, entertainment (eating out, liquor store, nicotine products, movies, theater, concerts, etc), travel, health and wellness (gym and haircuts), and streaming services.

For each line item, put the amount you’ve spent, on average, for each of the past three months. Then add them up. If you’re in the negative, identify areas to trim. If not, you’re within budget. Keep it up.

Savings

As important as it is to monitor your income and your spending, the only way to build any security is to have a little something in savings. Start small. $10, $100, whatever can scrape away from your other expenses.

Be consistent. With every single paycheck, put something into savings. If you receive $500, put $20 into savings before paying any bills.

Build your savings up to $1,000 and refuse to touch it. In fact, make it as difficult as possible to get your hands on it. Set it up for deposits and don’t link it to a debit card. That way you have to go to the bank for withdrawals.

After you pay off your debts, pour more into savings until it equals at least three months in wages. Even when you achieve this goal, never stop budgeting. It’s a crucial element of financial health at any level of income.

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