How to Budget on a Low Income Without Feeling Defeated
Budgeting is no one’s favorite activity. It can feel especially draining when your income barely covers your bills. As a result, you may feel stuck when it comes to how to budget on a low income.
Although it may feel overwhelming at first, these low-income budget strategies can help ease at least some of the stress. If you know how much money is going to financial commitments, savings and entertainment spending, you’re less likely to face surprises in your finances. You can’t predict everything (we’re looking at you, flat tire), but being prepared and organized can also feel empowering.
These are some of our tips for managing money on a low income.
Why Budgeting Feels Hard — and Matters More — When You Have Less
Keeping up with bills while also trying to enjoy things like vacations and dining out, all with a low income, can take a serious mental toll. But we aren’t going to suggest any insane restrictions on spending. Draining all the joy out of life just because it’s another expense is not productive or sustainable.
But living on a tight budget means you don’t typically have the luxury of not keeping track of your spending. What if mapping out your paycheck down to the last cent seems exhausting? It can be, but budgeting your money also can help you gain some sense of control.
While you can’t fully control the income you’re provided, this is an aspect of your financial situation that you have power over. Taking even small steps toward stretching your money is a step in a positive direction.
Start With What You Know: Add Up Your Actual Income
This is a crucial first step. Knowing how much you have to spend is key to managing money on a low income.
You should include any net income in this, so money from your full-time job, side hustles, child support, etc. Net income is what you earn after any deductions like taxes. So it’s take-home pay.
For jobs that have fluctuating pay, like sales or jobs where most of your income comes from tips, take a look at your average worst month. So not the extreme low end, like a month where you took two weeks off. But if your income sticks to a typical range, work with the lower range.
You can track all of this in a spreadsheet, in a journal or on a budgeting app. When it comes to the latter, we recommend apps like Monarch and Cleo. But we also made a full list of the best budgeting apps that includes free options.
Give Every Dollar a Job — Even If You Don’t Have Many
Giving each dollar a job is like zero-based budgeting. It’s a plan that has you spend every dollar you earn each month in a productive way and leave no money unaccounted for. However, if you’re living on a tight budget, that might be what you’re already doing.
The details go like this: after adding up your net income, document your recurring expenses. Those are the bills you know you’re getting each month, like rent, utilities, phone, day care, credit card payment, etc. Then, look through bank statements to figure out, on average, what you spent on things outside those financial commitments. That’s clothing, dining out and other entertainment. Whatever is left, you give it a job. Put it in emergency savings, toward investments or put a little extra in your entertainment column because your friend’s birthday is that month. So it’s not about limiting your spending, but knowing exactly how you plan to spend.
This method has its pros and cons. It’s great for people who struggle with spending, function best with a detailed plan or who have specific financial goals in mind. It is, however, time consuming and harder to keep up with.
Cover the Essentials First: Housing, Food and Transportation
If you’re starting from scratch with budgeting, it’s tough to know where to begin. The financial commitments are the best place to start. It’s budgeting for the things that would significantly reduce your quality of life if you didn’t pay for them. So, your rent or mortgage, groceries, utilities, etc.
To be as frugal as possible, create batch freezer meals so you have dinner ready to go, scour the internet for coupons and use public transit if it’s available to you.
If those categories are a struggle to keep up with, you may qualify for some government assistance. This website can help you find what you qualify for, depending on your needs.
Trim the Rest: Realistic Cuts That Free Up Breathing Room
If you’d like to see more money in the savings column of your budget, there are several more actions you can take.
Canceling subscriptions has become a bit of a cliche. But there’s a reason it keeps coming up in financial advice conversations. It’s not a bad idea. They really do add up, and even if you just cancel something for a few months, that can put some extra money in your pocket. That leads us to another classic: dining out less. The previously mentioned freezer meals are a great place to start, because it takes care of dinner ahead of time. Check out our tips on saving at restaurants for when you do dine out.
If one of the bills stifling your budget is credit card debt payments, look at these balance transfer cards. You could move existing debt to a new card with a 0% introductory APR, giving you time to pay off your balance without the burden of interest.
Another thing you can do is take a look at bills that could be negotiable or switched for a better price. If your internet, cable and phone provider won’t budge on your bill (though it’s worth a shot first) then look into other companies. You might not even know that lower prices are out there, especially if you’ve had the same provider for a while.
Your car insurance is another area with huge savings potential. But shopping around for a new policy can be a lot of work. This new tool from The Penny Hoarder gathers all your best options together in one place, so you don’t have to waste time browsing endless insurance sites for a better deal. On average, drivers who shop around tend to save $860 per year or more.
When You’ve Cut Everything and It’s Still Not Enough
You have options if you’ve trimmed and trimmed and still come up short. There are ways to get money in emergency situations. This could include getting a personal loan, using a credit card (a 0% APR card is ideal) if you have one, borrowing from your 401(k), getting a home equity loan or borrowing from loved ones. Make sure you read here for the pros and cons of each. For example, borrowing from family is presumably interest-free, but it could put a strain on some relationships. A home equity loan can get you a larger amount, but the approval process can get lengthy. But regardless of the fallbacks, you need to survive. So do what you need to do to get through financially for the next month.
Look for Small Ways to Increase Your Income
If budgeting alone isn’t getting you where you need to be, you might want to consider options for extra income. That could mean taking on a second job. However, it doesn’t have to be. Especially if you’re already stretched thin with your schedule. Flexible side gig opportunities are more prevalent than ever. Many of them are online so you can do them from home.
These are some resources from The Penny Hoarder on how to make extra cash:
FAQs: How to Budget With a Low Income
Yes — budgeting helps make the most of limited income. Even $5 of intentionality can help avoid overdrafts or late fees, and make sure you’re not spending more than you’re bringing in.
Use your lowest expected income. If you end up bringing in more, then adjust as needed.
This is going to be different for everyone. Most experts say housing, food and transportation because they keep you safe, alive and employed. The last one especially is up for debate. If you work from home in a walkable city, your internet bill might come before that.
Save anything. And we mean anything. Even $1. It gets you started, and you can increase it as your income and commitments allow. Side gigs can also help bridge that gap.
Use whatever is helpful to you. Just a pen and sheet of paper will be more than enough. But there are plenty of free digital resources like Goodbudget.
