Budgeting is one of the most critical personal finance practices. Learning how to create and stick to a budget will help you manage your money and grow your savings. And more savings can help you buy a home or car or pay for unexpected expenses. If you’re currently sitting at home wondering how to budget money on a low income or even what a budget is, then this article is for you.
There are plenty of finance basics that you should familiarize yourself with. These include credit scores and reports, managing credit cards, personal loans and lines of credit, and of course, budgeting. Unfortunately, many people in America don’t learn these basics as kids or even adults. But these are the principles and strategies that can help you to become financially secure.
If you didn’t learn these basics in school, don’t fret. CreditNinja is here to help now. Read on to learn more about building a budget, what it means, and how to do it. And if you’re curious about more personal finance basics, then check out the rest of our blog to learn more!
How To Create a Budget
A budget is a plan for your money. It’s a list of all of your expenses and income. Writing all of these things down can help you see how much money you have coming in and where it’s all going. And keeping track of how your money is being spent is critical for managing your money.
Creating a simple budget should be a regular routine for you. You can create a daily, weekly, monthly, or even yearly budget. And the more specific and detailed you get with your budget, the better off you’ll be. But let’s start with a monthly budget.
Here’s a basic step-by-step process for how to make a monthly budget:
- Start by adding up all of your income for the month. Add up your paychecks (post-tax), as well as any other income you’re expecting. Write that total down.
- Now, write down all of your expected monthly expenses. Yes, all of them. This list should include your utility bills, rent or mortgage payment, estimated grocery costs, gas for the car, loan payments, and any other recurring bills or expenses for the month.
- The next step is to subtract your total monthly expenses from your total expected income. The number that you get will be what’s leftover after you pay all of your bills. It’s wise to save a portion of this and build an emergency fund. The rest can be your disposable income for a night out, or home purchases, or whatever you’d like to use it for.
But what do you do if your expenses outweigh your total income? Good question!
Budgeting Your Money On a Low Income
After you sit down and calculate all of your expenses and income, you may be dismayed to see that you don’t have enough income to cover the expenses. Unfortunately, this problem is all too common. Many Americans struggle with problems like this every month. They don’t know where the money will come from to pay all their bills, rent, or unexpected expenses.
Budgeting money on a low income is certainly not easy. Not only can you not pay all of the bills you need to, but you also won’t be able to save money.
The best advice we can give in this situation is to try to lower your monthly expenses.
Maybe you can find a more affordable grocery store, move into an apartment with lower rent, or consolidate your debt into a lower monthly payment. The whole idea here is to find ways to lower your expenses while also increasing your income.
Sticking to the Budget!
This is an essential part of a budget. After all, there’s no point in creating a budget if you’re not going to stick to it.
Sticking to your budget takes hard work, discipline, and self-control, but it will help you in the long run. Making sure you abide by the budget you set can help you to pay off debts faster, save money, and avoid costly loans in the future.
We recommend daily budget tracking. If you break down your monthly budget to a weekly or even daily amount, then you can better manage it. All you have to do is take your monthly disposable income and divide it by four to get the amount you can spend outside of your budget each week. Then divide that number by seven, and you have your daily amount.
Pay attention to what you’re spending every day, and ensure that you don’t go over your daily amount. Do this, and by the end of the month, you’ll be right on track.
Saving Money Isn’t Easy
Now let’s discuss your savings account and ways to save money. This isn’t always easy, especially if your expenses outweigh your income. But if you end up having some money left over each month, the smartest thing you can do is save at least some of it.
Trying to save money every month isn’t easy. But having an emergency fund to handle unexpected expenses can actually keep you out of financial trouble in the future. In addition, maintaining your savings can help you avoid risky loans, debt collection, and financial emergencies.
If you don’t currently have a savings account, we highly recommend opening one. They’re almost always free to open if you already have a bank account. Give your bank a call or visit their website to find out more about opening a savings account.
If you do have a savings account, it’s wise to set up automatic savings. You can do this with your employer. If you have direct deposit set up, you can fill out a form with your employer and have them send a portion of your paycheck directly to your savings account. Just make sure it’s an amount that you can afford to save.
Getting Out Of Debt So You Can Start Saving
Unfortunately, if you have a lot of debt at the moment, it may be challenging to save money. So the best thing you can do for yourself is to pay down your debts, so you can start to save money regularly. But, ultimately, saving money on a low income while you have a lot of debt is very difficult.
If this sounds like your current situation, the wise choice would be to focus on paying off your debts.
Create your budget just like we mentioned above, and determine your leftover amount. Now take this excess amount and use it as extra payment towards your outstanding debts. Making additional payments or paying more than the minimums will help you pay these debts off much faster.
Continue to do this until your debts are gone. Then, once you have them paid off, you can start using that leftover amount to save money. You’ll be saving money before you know it.
How To Save Money on a Low Income
While it may be difficult, it’s not impossible to save money, even with a low income. The fact of the matter is that as long as you have a little bit of money left over after you pay your bills and expenses, you can save.
Saving money doesn’t mean you have to add thousands to your savings every month. Even a small amount is helpful in the long run. Whether it’s ten dollars or a hundred dollars, any tiny bit will help. Over time, you’ll start to build up a decent amount of savings.
The key to trying to save money is to be persistent and consistent. Even if you can’t put away a lot of cash each paycheck, it’s crucial to create the habit of putting something in your savings.
Creating An Emergency Fund
Another good thing to consider while working on your money-saving strategies is what you’re saving for. The best way to start is to focus on building an emergency fund.
An emergency fund is a savings account that you have in case of any financial emergencies.
Unexpected medical bills, vehicle or home repairs, or even unforeseen school costs are all things that you might use a fund for. An essential rule for emergency funds is that you shouldn’t be accessing the money for anything other than an emergency.
Many financial experts recommend having an emergency fund that could cover three months of expenses should you lose your job. Now, admittedly, that might be a lot of money. So having any money in your emergency fund is good. Start by setting the goal of one month of expenses in your fund. Once you have that, keep building until you hit three months’ worth.
Granted, you might end up experiencing an emergency before you get to three months, but if you do, start again and keep building.
Ways To Increase Your Low Income
As we’ve mentioned, it can be difficult to budget or save money if you’re currently dealing with a low income. Luckily, there are several strategies to increase your income and get you back on track. However, if money is tight, then read on to learn more about these income-boosting strategies.
Start a Side Hustle
A side hustle is any small money-making endeavor that you do while also maintaining your primary job. You can start a side hustle even if you have a full-time job. You would focus on doing the work on the weekend or in your free time.
A side hustle can be anything that makes you a little extra money. Typically, it’s a job that is very flexible or creative. For example, maybe you want to start an Etsy shop to sell homemade crafts or art. Or perhaps you want to start a small house cleaning business that you run in your spare time.
If you’re passionate about something and you can make a little bit of money doing it, then it may be a great side hustle.
Part-Time Jobs
It’s an unfortunate fact of life that many people in this country working full time have to take on part-time jobs to make ends meet. Rising housing costs, credit card bills, and making your car payment on time are a few reasons people may need a part-time job.
As unfortunate as it is, this may be a reality for you if you live with a low income. However, if this is the situation you’re in, there are plenty of options for part-time jobs depending on where you live.
A couple of good options for part-time jobs include driving for ride-sharing services like Lyft or even delivering food for apps like GrubHub. These jobs allow you to make your own schedule and work only when you want or need to.
These apps could be an excellent way for you to save money even with a low income. For example, if you can pay all of your bills with your full-time job, then the money you make from your part-time job could go straight into your savings.
Sell Stuff!
This is an excellent short-term way to save money or pay off your debts. Consider getting rid of old clothes you don’t wear anymore by selling them to a resale shop. You might not make a ton of money, but something is better than nothing.
You can also consider selling unused electronics or jewelry to cover housing costs, credit card bills, or a car payment. Many pawnshops will purchase things like this from their customers. Again, you might not make as much as the item was originally worth, but it can help.
Back To School?
While this may not be one of the ways to get money fast, it can improve your overall financial situation over time. So if you’re considering going back to college, trade school, or getting some other type of higher education, it could be a good idea in the long run.
Again, this is not a quick way to make more money. But if you can get a student loan to go back to school and achieve a certain level of education, you may be more qualified for higher-paying jobs in the future.
Ultimately, this could lead to an increase in your low income, help with saving money, and pay off things like housing costs, your car payment, and other debts.
How Does a Budget Affect Your Credit?
All of these budgeting and money-saving strategies can lead to better overall financial health. And managing your money in this way will also mean a better credit report and credit score.
If you’re budgeting your money and sticking to it, then odds are you’re also making your payments on time, saving money, and managing your income well. All of these things are factors that affect your financial health and your overall credit score.
Below are the factors that affect your credit score:
- Your overall payment history
- Your total amount of debt
- The length of your credit history
- New credit accounts you open
- Credit mix, or different types of accounts
If you’re doing a good job with budgeting money on a low income, then you’re very likely focused on these other factors as well. Luckily, there are even bad credit loans for borrowers with poor credit.
In Conclusion
The bottom line is that trying to save money on a low income is not easy. It’s going to take a lot of hard work and dedication to improve your income, pay your bills, and have some cash leftover to save.
That being said, it’s not impossible, and if you’re persistent and dedicated, then you can do it. Just remember the following key takeaways:
- Create a budget every month and stick to it.
- To save money, you’ll need to have money left over after all your expenses are paid.
- If you have disposable income, set up an automatic payment to your savings account.
- Budgeting and creating good financial habits will improve your credit score.