How to Budget When You’re on a Very Low Income

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It can seem like most of the budgeting advice out there is geared toward people earning higher salaries who may have many options for where to put their money. Can you budget when you feel like you have nothing to budget with? You can, and in fact it's an important way to see exactly where your money is going and can help you make adjustments when your income or finances change. Read on to find tips for creating and using a budget that can help you stay on top of your finances and possibly even contribute to savings.

What Is a Budget?

If you want to become more financially stable, the first step is to get your financial life organized. One of the best ways to do this is to make a budget. The idea of budgeting can sound intimidating, but a budget is just a way of understanding where your money is coming from and where it's going. In the short term, a good budget can help you do things like save money on a car or other large purchase, pay off debt and make payments on time. In the long run, a solid budget can help you prioritize what's important in life as you plan for your future and set goals.

Almost all budgets have two main parts you'll need to track: income, which is how much money you have coming in, and expenses, which is how much money you have going out. While the majority of income for many people comes from a job, what counts as income is broader than you might think. For example, child support, Social Security payments, alimony and other things you might not think amount to much all count toward income.

Understanding expenses can seem pretty straightforward because people often assume they know what they're paying for on a regular basis—but don't be tempted to skip this part: People often overlook small purchases and expenses that add up to a lot over time. For example, Americans spend an average of $20 per week eating out for lunch, which adds up to $1,043 per year.

How to Make a Budget

Even if you think you won't have any extra money at the end of the month, it's still important to see where that money goes.There are different budgeting strategies out there to suit different personalities, but the important thing is to just try one. Here are some basic steps to get started making a budget:

  1. Figure out how much money you receive each month. Be sure to include payments from all sources, including government sources and odd jobs, as well as your regular income. (Don't include monetary gifts unless it's a recurring gift.) If your income isn't the same each month, use the past three to six months to come up with an average amount.
  2. Calculate your monthly expenses. If you have a bank account, review a few months of your statement to see where your money is going. Expenses include your fixed monthly expenses (rent/mortgage, utilities, car payment), which are things that cost the same each month, as well as variable expenses (groceries, gas), which are regular expenses that are not a set cost each month. Make sure to count any subscriptions you have, as well as discretionary spending, which can vary each month and might include clothes or birthday gift purchases. If you pay for most things in cash, gather any receipts you have and organize them by month, or start tracking your receipts now by noting your expenses in a notebook or file.
  3. Compare your expenses to your income. Create a list of all your monthly expenses and compare it with how much money you bring in each month.
  4. Make a game plan. Now that you have a sense of your financial picture, you can make a plan. Outline your goals and priorities, and learn strategies for how to take action.

Put Your Budget to Work

What do you do if your budget shows your expenses are more than your income? The general rule of thumb is you can either spend less money or make more money—but that's easier said than done.

Going forward, it's important to track your expenses to help you identify areas where you might be wasting money or overpaying for items and services. Budgeting can also help you come up with strategies for stretching your money further and spending less. If you don't budget, however, you won't know how much more money you need to make or how much less you need to spend to make sure your income can cover your monthly expenses.

Between making more money and spending less money, cutting your expenses is the simpler place to start. Here are some way to cut costs:

  • Get choosy. First, distinguish between needs and wants. Do you need streaming music or video services? Can you cook or pack your own lunches and dinner instead of getting takeout? Do you need a gym membership or can you work out at home? These are discretionary expenses, and they're often the best place to start if you're looking to trim your spending.
  • Change it up. You can also take a close look at your variable expenses, which are the items that can change from month to month. You might need to get creative in order to save money on food, transportation and other activities, but all of these things add up over time, and your pockets will thank you.
  • Fixed expenses are fair game. You might also be able to save money on fixed expenses. For example, are there programs you can take advantage of that will lower your mortgage payments? Can you renegotiate your credit card payments? Is there a way to lower your car insurance premiums? You could also consider taking in a roommate to cut on housing costs or even move to a different apartment to save a bit more each month.

If you're on a very low income, you may find yourself in a situation where your budget is in the negative. If there's not enough money for everything, prioritize what needs to be cut back on or eliminated altogether before considering other options like using payday loans, which charge extremely high interest and fees and can lead to more debt problems down the road.

The Role of Savings in a Budget

Ideally, the money you save by creating a budget can get you on solid financial footing now, but don't forget about your future: Do whatever you can to put some money toward an emergency fund or retirement.

Starting an emergency fund in particular is important because it will help you weather unexpected expenses and stick to the goals set in your budget. Life happens, and when it does, an emergency fund that you keep in a dedicated savings account can prevent you from falling into the same financial situation you've worked so hard to dig yourself out of.

Many experts advise putting aside three to six months' worth of expenses to cover basic living expenses, but even just one month's worth of expenses can make a difference. Saving even $5 or $10 a week could help offset an emergency if your car breaks down or you need to pay a medical bill you weren't expecting.

If you need to build savings but cutting costs isn't cutting it, it might be time to consider picking up some extra work. Getting additional work doesn't have to be another full-time job. For example, do you have a skill people would pay for? Look for freelance work and offer your services. Do you have a working vehicle? Consider trying a side hustle like food delivery or ridesharing. Do you have an extra room in your house? Consider renting it out.

You might think that "saving for savings" doesn't make financial sense, but it's one of the best ways to prevent future financial disasters and keep your goals on the right track.

How to Get Help

If you have more money going out than coming in and you're in a situation where you truly can't cover your basic needs like rent or debt payments, you may be able to get help through credit counseling or financial assistance. If you'd just like some help figuring out how to lower your debt to free up money in your budget, you still could benefit from a certified credit counselor.

Even if you're on a very low income, budgeting is worth the effort. It may seem difficult to create a budget and impossible to get in financial shape, but with a little effort, you can improve your financial outlook and work toward achieving your goals.