Is this the opposition you face? You may view the mountain of your monthly revenue in one direction. You see a mountain of monthly bills in the opposite way, and that mountain is maliciously sizing up your molehill.
It’s not a pretty outlook. It’s not impossible, though. A budget is necessary.
The wonderful thing about a budget is that it makes sense since it balances your expenses and income, so even if your income is insufficient to satisfy your basic needs, you can still manage your money more effectively. Your mountain gets smaller and smaller until finally they agree.
When you’re not bringing much in the way of revenue, how do you create a budget that does that? by adhering to the same guidelines that govern any budget: perseverance, effort, and tough but vital expenditure decisions. These guidelines are even more crucial when you’re living paycheck to paycheck since it’s more difficult to overcome unforeseen financial setbacks like a medical cost or a significant auto repair. However, you are capable of doing it.
To make a budget work, regardless of your income level, you need a rock-solid financial plan to which you can stick. Let’s look at the steps it takes to stand your earnings face to face with your expenses.
1. Understand Your Financial Situation
You already know the nitty-gritty of your dilemma: Your bills are bigger than your bucks. But you might not realize how you got into this mess. Figuring that out is the first step in fixing it.
How do you do that?
Detail exactly where your earnings come from over the course of a month and how much is being generated from each of those sources, and then do the same with where and how you spend that money.
When you calculate your monthly income, start with the obvious: your regular paycheck. Then add whatever you make from a side gig and what you get from other sources such as child support, social security, disability, interest dividends and the like. Your budget will account only for your disposable income, so make sure you use after-tax monthly sums when you put it all together.
The Next Expenses.
Begin with the basics: utilities such your water and energy bills, food, auto payments, petrol, and public transit, as well as your mortgage or rent. The amount you typically spend on those items should be shown on your monthly credit card and bank statements. Next, enumerate any other essentials for your daily existence, including health and auto insurance, loan repayments, child care or child support, and any other essential costs that your financial documents indicate.
Lastly, make a list of all the non-essential expenses that drain your wallet over the course of a month. These should include things like streaming services, movie tickets, concert tickets, coffee on the way to work, new clothes, lunch out at work, drinks after work, and a host of other small and large items that you spend money on.
To add things up, you don’t have to be an expert in math. You can obtain a clear image of where your money is going with the help of a number of online financial tools and budgeting software.
After completing this initial stage, you will have a total of your income and expenses as well as a much clearer understanding of the size of your issue.
2. Establish a Reasonable Budget
Here, “realistic” is crucial. Budgets that are unsuccessful are frequently the result of being designed with unrealistic goals that are nearly hard to meet. Why even strive to adhere to that budget when you can’t or will not reach that standards on a monthly basis? It’s depressing.
Start by establishing some reasonable financial objectives that take into consideration the amount of your income in order to make your budget work for you. That frequently necessitates having the patience to realize that your budget won’t appear magically overnight.
It’s important to be realistic about how soon you won’t need your savings if you want to start building up your bank account. Be content to make little progress toward your debt load reduction if that’s what you desire. If your objective is to move into a larger or nicer apartment, be aware that saving up the cash for the increased rent will take some time.
Reducing costs is the most difficult aspect of practically any budget, and it becomes even more challenging when you’re attempting to meet those expenses with a restricted amount of money. Once more, you’ll need to use common sense while determining where to make cuts. (We’ll go over a few tactics for it in the section after this.) For instance, a lot of your fixed costs, such utilities, housing, insurance, healthcare, and auto payments, may make it challenging to cut back on them, at least initially. Prioritize them in your budget before moving on. The majority of your difficult spending decisions regarding how to cut back will need to be made in relation to your non-essential costs.
The 50/30/20 rule, which divides family costs into three categories—needs (50%) and desires (30%) and debt/savings (20%)—might be one strategy to help you manage your spending. The goal is to spend no more than 50% of your available money on necessities. That leaves you to decide how much money to spend on less important things like entertainment, trips, and dining out with 30% of it. The remaining 20% can be used for debt repayment, emergency savings, or retirement savings.
These percentages may vary based on your particular financial circumstances. A 70/20/10 distribution of your spendable income is recommended by one budgeting technique; this leaves more space for needs and necessitates more drastic reductions in discretionary expenditures. The formula may be adjusted to create a budget that is reasonable given your income and out-of-pocket costs.
Regardless of the approach you use, it’s critical to monitor the performance of your budget. It may need to be adjusted from time to time, therefore it’s important to examine it frequently and maintain flexibility.
3. Reduce Needless Expenses
Everyone makes various decisions about how much money to cut back on, so what one person considers superfluous spending may be essential to another. But those tough decisions are the foundation of every effective budget, no matter where or how the cutbacks are made. But let’s not fool ourselves. Those choices become much more difficult when you’re living on a meager salary.
Asking yourself this straightforward question about every purchase you make is likely the greatest (and maybe the only) method to reach where you need to be in the process of making cost reductions:
4. Boost Your Earnings
You don’t have to make all of your budgetary modifications on the spending side of the ledger. Yes, we get that you believe you are working as hard as you can right now, but there may be methods to increase your income during those infrequent hours of the day when you are not working.
Perhaps there’s a way to make money from a pastime you’re already interested in. Do you crochet? Draw? Cook? Make beer at home? Take pictures? Play around with web pages? Compose poetry? (Okay, throw that last one out; it doesn’t really bring in much money.) Have you attempted to sell the items you create? or charging for any services you may offer, such site design or photography? There exist flea markets, internet marketplaces, and work sites for independent contractors seeking to supplement their income.
It might be worthwhile to investigate continuing education programs that can assist you in honing the abilities you currently possess or broadening your knowledge base in order to increase your employability and provide financial support.
Do you think any side employment would fit you well? Perhaps you have enough free time to work as a delivery driver, dog walker, babysitter, or part-time employee. You could even be able to offer transportation services via Uber or Lyft. You may choose your own hours for a lot of part-time employment, allowing you to work only when it’s convenient for you.
Don’t forget about Facebook Marketplace and eBay either. Search your garage or attic for anything you could part with. The market for your old golf clubs and Cabbage Patch Kids may surprise you.
5. Create and Save an Emergency Fund
According to the Federal Reserve’s most recent data, just 54% of American adults—across all income brackets—have enough emergency savings to last three months. That is not favorable. Furthermore, there’s a compelling argument to be made that those with fewer means should value having an emergency fund even more.
This is the reason why: For low-income individuals, unanticipated medical expenditures, auto repairs, or job loss might be more detrimental. They are more likely to have to use their credit cards or take out high-interest loans to pay for the damages when an emergency occurs for which they are unprepared. That will ultimately make their financial situation much worse. Their debt will have increased.
In an ideal environment, personal financial gurus advise setting aside up to 10% of your income for an emergency fund, but many low-income workers cannot afford to do so. However, a well-crafted budget will enable you to control your spending so that you have opportunity to make incremental progress toward emergency savings. Your patience will pay off, and little by little, you’ll get closer to financial stability. Then, you may utilize any of the infrequently occurring large sums of money that you receive—like a tax refund or a cash gift for the holidays—to increase your emergency reserves.
You can maintain consistency in your emergency fund payments by setting up automated saves. You can set aside money from your paycheck, for instance, if it is placed immediately into a different savings account just for emergencies.
Look into smartphone apps like Mint, Acorns, Qapital, and others that either automatically transfer a predetermined amount to your emergency fund every time you make a purchase at a particular store, or automatically round up the price of every purchase to the nearest dollar and direct the difference to a savings fund. It’s worth seeing whether your bank offers spare change applications as well; some do.
Another piece of advice is to create a savings challenge to help shape your self-motivation. Establish some expenditure reduction objectives. Is it possible to go a whole weekend without spending any money? Then transfer the money you didn’t spend into your emergency fund after you meet them.
6. Control Your Debt Sensibly
Not all debt is made equally. It’s possible that you have a variety of debts that affect your money in varying ways. Your budget should be set up to pay off the most harmful debts first because of this.
Start with any personal loans you may have taken out from predatory lenders and your high-interest credit cards (which is nearly all of them!). Payback any payday loans you have taken out as soon as you receive your next paycheck. As you reconsider how you use your resources, give them priority.
Debt consolidation, which combines many accounts into a single account with a single monthly payment that is less than the total of the separate bills you’ve been rassling with, is one approach to simplify your payments and ease some of the strain on your budget.
There should be a lower interest rate on the new, single balance. Ultimately, debt consolidation can save you money and help you pay off debt more quickly, but obtaining a debt consolidation loan or balance transfer credit card that combines your payments will require a respectable credit score.
Negotiating with debt collectors is an option if your arrears are so great that a collection agency is harassing you. Though it’s not always effective, the effort is still worthwhile. Make sure you know how much your budget will allow you to pay, and then find out whether the collection agency is amenable to a modified payment schedule or a settlement that is only partially paid for. It’s possible that the creditor would rather have something from you than nothing at all.
For assistance with any of these approaches to prudent debt management, there is specialist financial counsel available. Nonprofit credit counseling organizations provide a free first consultation to go over the specifics of potential debt solutions that are suited to your unique financial circumstances. You can even receive assistance in creating your budget from a charity counselor.
7. Make Use of Local Resources
As we just indicated, you may get financial guidance by calling or stopping by the office. However, don’t discount the help that is available through the support services that your town, county, or even neighborhood may provide. By cutting costs and increasing income, they may assist you in staying inside your budget.
Look into what a local food bank or Community Action Agency (CAA) could have to help relieve the burden of your grocery shopping if you’re struggling to stay to your food budget, for example. CAAs are neighborhood-based private and public nonprofit organizations that provide low-income individuals with a range of services, including job training and help with energy bills, in addition to food. Don’t hesitate to use them to your advantage.
Additionally, there are free or inexpensive educational programs and seminars available in your area that may help you gain the information and abilities needed to progress in your profession or open doors to a side gig or part-time employment. In-person and online classes are available in most local universities and community centers on topics including healthcare, social work, education, counseling, and more.
8. Make Use of Public Resources
The government also offers assistance with practically all aspects of your budget, including housing, utilities, food, and medical care. Even your phone and internet expenses may be covered by the government.
Among the government initiatives that are worth looking at are:
- Supplemental Nutrition Assistance Program (SNAP), which helps low-income households supplement their shopping budget by providing food assistance.
- Medicaid, which offers qualifying low-income adults and children free or inexpensive healthcare.
- The Low Income house Energy Assistance Program (LIHEAP) helps pay for weatherization, energy crises, small energy-related house repairs, and home energy bills.
- accommodation can be obtained through a number of programs that assist those in need with buying a property, locating temporary accommodation, fixing up an existing residence, avoiding eviction or foreclosure, or even lodging a complaint against a landlord.
- TANF, or Temporary Assistance for Needy Families, provides financial support to families in need. Another name for this program is welfare.
- Lifeline provides low-income people with cheap phone or internet access.
Others exist. When finances are tight, there’s no excuse not to ask for assistance from the government.
Setting A Budget for A Better Future
Now you know what your new budget can accomplish for you. It might reveal the expenses you incur. You can learn how to save from it. You can use it to get through difficult financial times. It may put you in a position to take that long-needed vacation or to purchase a new home or automobile. It can cover your kids’ college expenses. You may prepare for retirement with it.
It may provide you as a low-income earner with a road map to happier days ahead of you.
All of that is possible provided…
If you have patience.
If you work hard.
If you’re prepared to make tough choices about how much money you spend and maintain them.
Recall that you don’t have to stick to your budget exactly. It could alter. In truth, it ought to alter as your financial circumstances do. Because of this, it’s critical to regularly review and modify your budget as your income increases or decreases, as you make further expenditure cuts, or as you reach the objectives you set when you first formed it. Give your budget the careful attention it needs.
Don’t forget to request assistance when you need it. Recognize that there are solutions for all of your financial problems. For instance, a nonprofit credit counselor can discuss the pros and downsides of actions like:
Debt management: By negotiating reduced interest rates and monthly payments with credit card providers, a nonprofit credit counseling firm can help you reduce your debt.
Debt consolidation can make paying off credit card debt easier by combining many monthly payments into one.
debt settlement, which might lower your remaining loan balance.
However, it all begins with your budget. That marks the start of the procedure that will level the revenue molehill and bring your mountain of costs into balance.
