Money is, at best, something we'd instead not think about and, at worst, a nightmare that induces anxiety. But whether we like it or not, we make financial decisions every day, and we cannot avoid the influence that money has on our lives.
Living on a tight budget is not always a terrible experience; it can be an opportunity to develop organizational skills, self-awareness, and self-discipline. Here are a few tips and tricks for surviving on a low-income budget, whether you're in the process of paying off debt, making a simple living, or hoping to retire early.
A budget is a breakdown of how much you bring in each month and how much you spend. With a budget, you can figure out if you will have enough money to do everything you need and desire. It enables you to create an emergency fund, savings account for a large purchase or invest in your financial future without any guesswork. A good budget plan can also help you pay off debt or stay out of debt by allowing you to manage better where your income goes. Budgeting, regardless of income, can help you minimize stress and stay on target.
The first step to building a budget is to determine your income. Brian Meiggs, the founder of My Millennial Guide, says, "This is everything you make in a month from all sources, including your paycheck, child support, spousal support, alimony, investments, and any other source. If you're unsure of your monthly income, estimate high."
After you know how much you earn, it is time to figure out how you spend in a month. "This should include both fixed expenses, like your rent or mortgage, car payment, and insurance; and variable expenses, like groceries, gas, and entertainment," says Brian.
Next, you have to separate the 'needs' from the 'wants' in your list of monthly expenses. Things like mortgage, food, gas, credit card payments, etc., should fall under 'needs.' And as Brian points out, "luxuries [or wants] would include things like vacations, new clothes, and entertainment."
When you have successfully cut off a few luxuries, like subscriptions you don't need or overpriced coffee, you can figure out how much money you are left with at the end of each month. You can allocate your excess income towards debt repayment or future financial goals.
You're trying to make ends meet. How can you save more money if you make minimum wage? How can you achieve your financial objectives on a modest income?
According to Paw Vej, COO at Financer.com, "There are a number of ways to save money on a low-income budget, and some require more effort than others. One way is to live below your means by making wise choices with your spending. This may mean sticking to the basics (like food and housing) or cutting back on luxury items like entertainment or expensive clothing."
Brian also suggests that "one of the best ways to save money on a low-income budget is to get creative. If you have a skill or talent that you can offer others, there are many ways to monetize it. You can start a blog, create an online course, or even offer consulting services. Get creative and see what you can come up with!"
Bad money habits, in particular, die hard. If you have no savings and spend more money than you earn, it's time to change your spending habits and work toward healthier financial practices. Developing healthy money habits can improve your wealth and position you for financial success, and it will teach you how to budget, save money, and work toward your financial goals.
Tracking your spending is the first step toward developing positive spending habits. "You need to be aware of exactly where your money is going before making any changes," says Brian. Regularly tracking your expenditures can give you an accurate picture of your money and where you'd prefer it to go instead.
Brian also suggests paying in cash as "when you use credit cards, it's easy to spend more than you can afford. To avoid this temptation, make a rule that you'll only pay cash for purchases." Having a credit card is not always a bad thing, and in fact, a credit card can come in handy in an emergency. Credit cards, when used and paid off on time, can assist raise your credit score, making it easier to get loan approvals. However, when unwise spending habits result in credit card debt, it can be challenging to get back on track.
When you plan, you can set specific goals for shopping. Just like it's easier to control your urges when you're not hungry, it's easier to set these goals before seeing the tempting purchases. If you want to spend less money but often end up buying more than you planned, writing a shopping list could be one way to help you reach your goal.
"Before you start spending your money each month, set aside some cash to save. This will help you build up an emergency fund, so you're less likely to charge unnecessary purchases to your credit cards," says Brian. An emergency fund is a collection of liquid funds for unexpected expenses such as medical bills or car repairs. Having an emergency fund can mean the difference between a minor hiccup in your financial life and total financial ruin.
Living paycheck to paycheck is a phrase used to describe individuals who spend most of their income on expenses. If you live paycheck to paycheck, very little or none of your income is saved.
If you live paycheck to paycheck, you may face a financial crisis where you may lose your job, have a medical emergency, or get involved in an accident. Emergency savings can help you deal with such situations. Even if your income stops or is spent elsewhere, you will have sufficient funds to survive for at least two months.
You may have more flexibility in your budget than you think. Setting spending goals can help you avoid overspending, and cutting unnecessary spending helps reduce monthly expenses. Finding the best car and home insurance deals will also help you do the same. And making a habit of putting bonuses in saving funds.
If your current job situation allows it, get a part-time job. You can use the extra income to pay off debts, build savings, or invest for future returns.
Planning a realistic budget and reducing expenses will help you pay off debt. Avoid unnecessary purchases and pay your bills on time to avoid accumulating more debt—late fees and high-interest rates slow debt repayment.
It can be challenging to live on a low income. But it doesn't have to be that way. You can overcome challenges with the help of a well-planned budget. Overspending can happen right under your nose, and you may be unaware because you do not track your expenses and budget accordingly. Knowing and controlling your finances allows you to manage your spending and saving. Even if you have a limited income, you can save for future financial goals and emergencies by developing good spending habits. A budget and good spending habits can help you avoid crippling debt and eventually stop living paycheck to paycheck.