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Budgeting

How to Budget With a Low Income

There just never seems to be enough money. Sound familiar? If so, I see you.

Whether you’re stuck in a low-paying job or you’re battling inflation, I know it can be hard to make progress toward your goals—let alone make ends meet—on a lower income. Forget thriving. Maybe you’re just trying to survive.

But no matter how much you make, there are things you can do to feel more in control of your finances. I’m going to walk you through how to budget your money with a low income. Plus, I’ve got some tips to help you save more money and make your paycheck go farther.

How to Create a Budget With a Low Income

Even if you have a low income, you still can (and should) make a plan for your money. It’s all about working with what you have. And a budget helps you do just that by telling your money where to go each month.

But how exactly do you create a budget when you don’t make a ton of money? The same as everyone else: one step at a time.

Money

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Before I get into the nitty-gritty, go ahead and have your bank account pulled up for easy access (you’ll need it in a minute). Also, grab a pencil and paper to write out your budget—or you can use a free budgeting app like EveryDollar, which makes it super easy to plug in and adjust your numbers in real time. Okay, ready? Let’s jump in!

Step 1: List your income.

Every budget starts with your income, no matter how much you make. Because you can’t know how much you’re able to spend for the month if you don’t know how much is coming in, right?

Start by listing out all your sources of income. This includes salaries, part-time work, side hustles, stipends, child support, disability, social security—basically any way you get paid each month. And if you work on commission or have an irregular income, just use your lowest monthly income as a place to start (you can always go up from there).

Step 2: List your expenses.

Once you’ve got your total monthly income figured out, your next step is to plan for all your monthly expenses. (This is when you’ll use your bank account to get a better idea of your spending.)

Take care of your Four Walls first.

Before you can budget for the things you want, you’ve got to make sure the basics are taken care of. After setting aside money for giving and saving (depending on what Baby Step you’re on), start by budgeting for what we call the Four Walls: food, utilities, shelter and transportation.

Write down how much you need for your rent or mortgage, as well as an average for bills like electric and water. What do you usually spend on food each month? What about gas? Don’t sweat trying to get your budget percentages exactly right. Just give it your best estimate.

Then plan for other expenses.

After your Four Walls are covered, be sure to include costs for things like childcare, insurance, and debt payments in your budget, as well as other common expenses. How much do you spend on entertainment? How many Target runs do you usually make for household products each month? And you’ll definitely need a miscellaneous category for those random expenses that pop up (because you know they will pop up).

For now, don’t worry about what you think you should be spending in these categories. At this point, you’re just trying to get an idea of what you typically spend each month (and we’ll do some adjusting in a minute).

Step 3: Subtract your expenses from your income.

There are a lot of budgeting methods out there, but zero-based budgeting is the best. When you subtract your expenses from your income, it should equal zero. (If you’re using EveryDollar, it’ll do the math for you.) That might sound like you’re spending all your money in one month, but it really just means every dollar you’re making should have a job to do inside your budget—whether it’s giving, saving, spending or paying off debt.

Now, you might get a negative number instead of zero the first time you do this, especially if your income has gone down recently. If that happens, no shame. This is why you’re doing a budget: to stop the overspending before it happens (and to avoid those overdraft fees).

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

So, you did your zero-based budget, and you realize you don’t have enough money to cover all your expenses for the month. First, take a deep breath. I know it can feel overwhelming when you’re looking at the numbers. But we’re about to do some adjusting to help fix that!

Here’s the deal: You have to be more intentional about your spending and even make some sacrifices—especially if you’ve been relying on debt to fill in the gaps before now. But the good news is, there are plenty of ways to help you balance out your budget so you can get back on track and spend with confidence.

Cut out extras.

First things first, go through your budget and see what costs you can cut out. Do you need all those streaming services? Do you really have to get your nails done every week? These things aren’t bad, but if your budget says no, you have to say no as well.

Skip the restaurants.

Eating out is a huge budget buster! Scale back on restaurant visits to once a week—or cut them out completely if your budget is super tight. Yeah, cooking isn’t as convenient as swinging through the drive-thru, but you’ll save a ton of money. Repeat after me: “We have food at home.”

Don’t buy new clothes.

Listen, I love shopping as much as the next person. But unless your kid has outgrown their clothes or you need some new items because nothing in your closet fits, you can probably get by without buying any new clothes for a while.

Sell your stuff.

Clearing the clutter in your life can help you add more money back into your budget. Just do a sweep of your home and look for things you no longer use or love. Old sports equipment? The gift from your mother-in-law that’s collecting dust in the closet? That extra set of fancy dishes you keep just in case the Queen of England happens to stop by for a meal? It’s time to let these things go and sell your stuff online to make some extra cash.

Save money on expenses.

What about the budget categories that you can’t cut out completely? Here are some ways to save money on those necessary expenses.

Food

Utilities

  • Replace your air filters.
  • Only run appliances (like dishwashers and washing machines) when they’re full.
  • Wash clothes on cold.
  • Adjust your AC or heat.

Transportation

Insurance

Entertainment

Find ways to increase your income.

If you’ve scaled back all you can on your expenses and you still don’t have enough to make ends meet, you need to figure out how to boost your income. Here are some ideas to help you get started.

Get a side hustle.

From driving for Uber and delivering meals to selling homemade jewelry and tutoring online, there are lots of ways you can use your talents and free time to make some extra money on the side.

Work overtime.

Don’t want to commit to a new side gig? See if you can work more hours or take on extra shifts at your current job. It doesn’t have to be all the time, but having that bonus in your paycheck is definitely worth it.

Freelance.

If you’ve got skills like photography, writing, design or bookkeeping, there are plenty of opportunities to do some freelance work. You can charge by the hour or a flat rate per assignment. And the best part is, you get to decide how many projects you take on at a time.

Ask for a raise.

Feel like your pay doesn’t match the effort you put into your job? Try asking for a raise. You’ll have to do some planning before you bust into your leader’s office asking for more money. But if you think you deserve to make more than your current salary, it’s worth starting the conversation.

Switch jobs.

Are you trapped in a job with low pay and little to no opportunities for growth? If that’s the case, it’s probably time to look for another job. Maybe you just need to find a better company. Or maybe you need to switch career paths altogether. Either way, there are plenty of jobs out there that will help you make more money and do work you love—without having to go back to school.  

What to Do If You’ve Got a Low Income

Get a starter emergency fund.

I know things may be tight, but you still need a safety net. There’s nothing more stressful than being broke and having to deal with a very expensive emergency. But an emergency fund will keep you from busting your budget when life throws a curveball—especially if you’re living paycheck to paycheck. So, before you focus on any other goals, make it a priority to save $1,000 for your starter emergency fund. That way, you can rest assured you’ve got enough to cover a new tire or AC unit repair.

Don’t go into debt.

You might feel tempted to borrow money if you don’t have enough to cover everything you need or want. But trust me, debt only makes your problems worse. Like, way worse. And the payments you’ll have to make will only squeeze your budget even tighter. You can save yourself a ton of trouble by deciding here and now that you’re not going to use debt as a crutch.

If you have your emergency fund and you’re making the right decisions with your current income, you won’t have to rely on debt to bail you out. And if you’ve already got debt, paying it off will help you free up your budget that much more!

Adjust your budget.

Low income or not, you can still have control over your money by making and sticking to a budget. And when you do get a higher income and lower your expenses, make sure you adjust your budget—and keep adjusting it month to month. Remember, every dollar should have a job to do, especially when things are tight.

It may sound simple, but you won’t believe how much peace and freedom a budget gives you. And you can go ahead and start budgeting for free with EveryDollar! Because when you have a plan for your money, you’re the one who calls the shots—not your income.

Rachel Cruze

About the author

Rachel Cruze

Rachel Cruze is a #1 New York Times bestselling author, financial expert, and host of The Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches 18 million weekly listeners with her personal finance advice. She has appeared on Good Morning America and Fox News and has been featured in publications such as Time, Real Simple and Women’s Health magazines. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.

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