Budgeting is one of the basics of responsible financial management, but people avoid the project out of fear, procrastination, and faltering confidence in their money-savvy skills.
Setting up a budget is not difficult. Sticking to that budget, however, is usually where the struggles start to crop up.
Budgeting on a low income presents additional hurdles, but they’re manageable ones.
Yes, even if you’re operating on a very low income, you need a budget. Even if your income barely covers your basic costs of living, even if you’re surviving with the help of a credit card (or cards), a budget is the first thing a financial consultant will ask you to implement.
Why? Because they’re necessary. Tracking your money and committing to the limits you’ve set for yourself are the only ways to start saving, climb out of debt, and building a healthy financial base.
If you’re ready to take on the challenge and change your relationship with money, we’ve put together a strategy that you can follow to build a budget, keep track of your money, and achieve your financial goals, even on a low income.
Track Your Spending
What you’ll need: Your phone and a willingness to download some free apps.
Time to complete: 20 mins
Step 1 in any financial plan worth its salt will be to start tracking your spending. Manically checking your account balance isn’t good enough.
If you’re going to start taking your money seriously, you need a serious way to keep an eye on your numbers. Pick one of the personal finance apps on the market and start connecting your accounts.
Apps like these aggregate your data and distill your flow of money into graphs, charts, and other visual cues that make it easy to understand your actual financial position.
In the battle between FinTech drivers, Mint vs. Personal Capital represents a big part of the discussion around the best apps for budgeting. Check out one of our most popular articles where we’ve laid them out and compared their feature-sets, side-by-side, to help you understand the differences.
Create Your Cost Centers
What you’ll need: Your account statements from every checking, savings, and credit account you own going back about three months. You’ll also need a way to record your cost centers—pen and paper work just as well as a spreadsheet or note on your phone.
Time to complete: 45 mins.
As far as the effort that you’ll put into reaching your financial goals and sticking to your budget goes, designing your actual budget restrictions is one of the easiest things on your to-do list.
Set up between five and ten categories for yourself that will cover all your spending for the month. Start your list with a category labeled “savings.” Give priority to your essential costs like:
- Housing costs
- Loan payments
- Insurance plans
- Critical bills
Don’t worry about assigning specific dollar amounts to each cost center yet. We’ll tackle the actual allocation of your money in the next step. For now, just figure out what you’re spending your money on, what has to be on the list, and what categories of spending could you potentially live without.
Work With Your Essential Costs First
What you’ll need: Your account data on all your bills. Your phone. As much patience as you can muster.
Time to complete: 2+ hours.
Go through your monthly expenses and start assigning a portion of your monthly income to your essential costs of living first.
When you’re working with a low income, you probably won’t have all that much left over after your basic needs are funded. This is where budgeting can get tricky, but this is also the part that most people fail to do while creating their limits.
Most of your regular costs are negotiable. Go through your list of essential costs and contact the provider for each. Make a commitment to communicate with every single account that you pay on a regular basis.
Talk with your insurance provider about lowering your rates. Talk with your utility company about reducing your monthly costs. Switching utility companies can result in considerable savings. Even your landlord could be willing to work with you on your monthly payments.
Contact every debt servicer, every account provider, every institution that you pay every month and be ready to negotiate. Freeing up small amounts of money on each account may not seem like much when taken out of context, but even an extra $100 saved every month can help ease your financial burden.
Negotiating payments is crucial when you’re working with a low income.
What you’ll need: A mindset that will put you first.
Time to complete: 30 mins.
Now that you’ve gone through and attempted to find at least some reduction on each of your bills, you should have an amount left over from your monthly income to cover your “non-essential” costs.
This category covers things like:
We put groceries and gas in this category because these tend to be variable costs that you can manipulate with some smart planning and a little creativity.
Before you start divvying up your remaining income between these categories, write down a number under your savings, even if that number is $10. Paying yourself first is a healthy financial habit to get into.
Your savings is your number one priority, and you should be funding that before you do anything else every month.
Once you’ve committed to saving something, go ahead and divide whatever money is left between your non-essential cost centers.
Shift your mindset
Congratulations on setting up a budget. But the hardest work is still to come. Sticking to that budget is always easier said than done.
Changing your relationship with money requires that you change the way you approach your priorities. Once you accept the fact that your current lifestyle is not helping you improve your financial situation, you can start making changes that will help you remedy that problem.
Challenge yourself to reconsider every single category of your expenses. Look at what you’re spending your money on and investigate creative ways to cut back. That might mean learning to walk to work, making healthier food choices, finding a better outlet for stress than retail therapy.
Start using your budget as a source of motivation for you, instead of a source of stress.
If you can work with your mindset and start finding validation in meeting financial goals, saying no to unnecessary purchases, and taking control of your financial life, you’ll find success in budgeting.