How to Budget Money on Low Income – 7 Useful Strategies

If you are living with a low income and looking for a practical guide on How to Budget Money on Low Income, you are at the right place.

Budgeting on low income is not very difficult but can be challenging. But, with the right framework and practical approach, it becomes easy to save money with a low income. Once you start budgeting on low income, you will find many ways to save money. Creating a budget, paying off debt, and saving are great ways to budget on low income.

No matter how much you earn, there are many ways to control your finances. With a proper strategy and the right framework, it becomes a manageable task.

In this comprehensive guide, we’ve covered the most important steps that help you effectively budget and save more money with low income.

Why Budgeting on Low Income Is Important?

If you are stuck with low income, you have less savings in your account. For low-income, you need to plan for every dollar. Therefore, the budgeting process covers the things you need the most and plans for the items you want.

Managing expenses on low income can be challenging. You need to have enough money for housing, groceries, or medical expenses to survive. You may want to attend a friend’s wedding or want to travel, but all your money is spent on utilities or rent payments. So, creating a budget is a best way to tackle unwanted situations.

Why Budgeting is Crucial

When funds are tight, budgeting is more than just a good practice—it’s a necessity. A well-structured budget enables you to:

• Control Your Spending: Track your expenses to prevent overspending and eliminate unnecessary costs.

• Prioritize Essential Needs: Focus on what matters most, ensuring your basic needs are met.

• Prepare for Emergencies: Even a modest emergency fund can protect you from unexpected financial shocks.

• Achieve Financial Goals: Whether paying off debt, saving for something significant, or just making ends meet, budgeting helps you reach your objectives.

How to Budget Money on Low Income

Have a low income. Don’t worry! You still can save money by setting up a plan. You have to work on what you have. Creating a budget can help you save your money. Plus, you can also track where your money is going.

But how exactly do you create a budget on a low income? Keep your pen and paper to write about your budget. Here is the full guide on How to Budget Money on Low Income:

• Calculate your income and start tracking your expenses
• List essential expenses
• Create a Realistic Budget
• Cut Unnecessary Spending
• Build an Emergency Fund
• Pay Off Debt

1. Calculate Your Income

Start budgeting by knowing your current income. Make a list of all your sources of income and start tracking your expenses for a month. No matter how much you earn you can’t predict how much you’re going to spend each month. Track how much you are spending on essentials, wants, and savings.

Check all your sources of income including salaries, business, part-time work, side hustles, or any other way. Note down all the sources of your income.

» MORE: How to Become Financially Independent

2. List Essential Expenses

Once you’ve covered your total monthly income, the next step should be to plan and prioritize all your monthly expenses. Start by distinguishing between essential and non-essential expenses. Create a list of all your necessary expenses like utility bills, credit card balances, groceries, and insurance.

You should prioritize must always come first.

• Housing: You must prioritize house rent or mortgage over other expenses to avoid losing your house.
• Groceries and Food: This is also another important expense of our daily life. However, you don’t need to buy expensive items or foods. Try to eat the healthiest food on a smaller budget. This will help you not to get stuck and allow you to save more money.
• Healthcare and medicine: Always try to keep yourself healthy and fit in every situation. In case of a medical emergency or mental health issue, medical bills can haunt you. Plus, you cannot take care of your family if you are sick.

3. Create a Realistic Budget

If you are unable to know how much money you have or how much you need to pay bills or you don’t know how much you have to save. Creating a realistic budget is the way to go. The 50/30/20 rule may help you help you because this rule separates your expenses into 50% needs, 30% wants, and 20% savings.

A budget is one of the most important things a low-income family can do to get control and save money. Create a detailed budget about your essential expenses like rent, utilities, etc, and wants like entertainment, dining, etc, and savings like emergency fund, retirement, etc.

Keep an eye on your budget, it will always help you keep track of your expenses. Consider savings for emergencies to build financial safety.

4. Cut Unnecessary Spending

Cutting unnecessary expenses is another great way to save and budget money. Try to reduce unnecessary expenses on wants like dining out, entertainment, and impulse purchases. Try to spend on these things occasionally.

5. Build an Emergency Fund

According to a popular saying, you need three to six months’ worth of living expenses saved for unexpected expenses. Build an emergency fund to manage unexpected expenses. This emergency fund can prevent you from going into debt.

Financial experts suggest that creating an emergency fund is the top priority after creating your budget.

6. Pay Off Debt

Once you set your budget, consider a portion of the extra money towards paying off debt. Debt is a major expense for a low-income family and it seems like a big hurdle. So, paying your debt on time can save you hundreds of dollars by not paying extra charges on purchases.

However, your main goal should be savings, but it is worth taking a look at how much you are spending each month on debt. How much money you are spending on interest and fees? It is very important to focus on paying off debts to save funds for emergencies.

» MORE: How to Stop Spending Money on Everything

7. Differentiate Needs vs. Wants

Try to prioritize needs and wants. Divide your expenses into two categories need and wants. These include:

• Needs: Housing, food, transportation medical bills, etc.
• Wants: Dining out, entertainment, and subscriptions.

Learning the difference between needs and wants is essential to control overspending on unnecessary things. Think wisely before making any purchase, and question yourself if you really need this product or if it is just a desire.

8. Staying on Track

Regularly Review Your Budget

As your financial situation changes, regularly review and adjust your budget:

• Monthly Reviews: Compare your actual spending to your budget and make adjustments.
• Quarterly Assessments: Reevaluate your financial goals and tweak your budget as needed.

Stay Disciplined

Budgeting requires commitment, but the rewards are worth it. To stay on track:

• Avoid Impulse Purchases: Stick to your shopping list and budget.
• Keep Your Goals in Mind: Remind yourself of your financial goals to stay motivated.
• Seek Support: If you’re struggling, don’t hesitate to seek advice from a financial advisor or a support group.

How to Create a Budget With a Low Income

Don’t worry, if you have a low income, you still can make a plan to create a budget with a low income. Here are the main three steps involved in creating a budget with a low income:

• Know your income
• Calculate outgoing expenses
• Subtract Expenses from Your Income

Step 1. Know & Calculate Your Income

The first step to creating a budget starts with your income. It is important to know how much you are spending and how much money you are saving.

To calculate your income, list all the sources of your income. This list can include your salary, side hustles, part-time work, or any other sources of income. If you have an irregular income, consider your lowest income to start calculating your income.

Step 2. Calculate Outgoing Expenses

Have you ever calculated what are your expenses? Once you figure out your monthly income, now it’s time to calculate your monthly expenses. To calculate expenses, you need to count everything from housing to car payments, medical & everyday expenses bills. Here’s a short list to include in your expenses:

• Groceries & Food
• Utilities
• Housing
• Transportation
• Healthcare
• Entertainment
• Insurance
• Clothing

Step 3. Subtract Expenses from Your Income

After you have calculated all your income and expenses, now subtract your total expenses from your total income according to this formula:

TOTAL YEARLY INCOME – TOTAL YEARLY EXPENSES = X

Suppose, you are getting a positive number or zero after subtracting your expenses from your income. It means you have balanced your budget! Your next step should be to pay down your debt and save for an emergency fund.

Things to Do If Your Income Doesn’t Cover Your Expenses

If you calculate your expenses and find yourself you don’t have sufficient money to manage all your expenses for the month. Don’t worry, you can do these things to cover your monthly expenses:

• Save Money on Food/Clothes: Spending money on food at restaurants is the biggest expense each month. It should be your main priority to start saving money. Resist yourself to visit restaurants once a week. or try to stop visiting completely. You can eat food at home and can save up to $100 to $500 in this category alone.
• Don’t Buy New Things: Commit to stopping buying new things like clothes, shoes, and household items. Instead of shopping, you can sell your old items that you don’t want.
• Increase your income: It’s a great thing to do if you want to cover your expenses. Find out the ways to boost your income. You can start a side hustle, freelance work, part-time work, ask for a raise in salary, or switch your job.
• Sell Your Old Items: Clearing your old stuff can help you make extra money. Just walk around your home and look for things that are no longer for use like old sports equipment, decorative items, or gifts. Sell them at your nearby stores or use online resale sites like eBay.

Conclusion on How to Budget With a Low Income

Creating a budget on a low income is a type of skill that can be achieved, developed, and refined over time. By following a practical approach, understanding your financial situation, and making informed choices, you can financial stability with a low income.

Budgeting on a low income is possible, but remember it takes time and effort. You need to adjust your budget multiple times to find the best one. So, be patient and start chasing your financial goals.

How to Budget Money on Low-Income FAQs