How to Budget Money on a Low Income

Creating and sticking to a budget is hard, and doing it on a low income is even more difficult. In a recent WalletHub survey, 44% of people said the most challenging part of sticking to a budget is not having enough income, but simple steps like listing your expenses and prioritizing your essentials can make budgeting easier. Below, we’ll list some manageable steps you can take to budget effectively on a low income.

Try WalletHub's free budgeting tools!

Figure out your income

Look at all your sources of income, including your post-tax paycheck, money from any side jobs, child support, and any government assistance like disability or Social Security. Add these all up so you know how much you get paid every month. If your income changes every month, use the average of the past three to six months.

Track all your expenses

After you determine how much money you have to work with, track where it is going every month. You can review your bank statements and credit card bills to see what exactly you are spending your money on and how much you are spending.

If you don’t have a bank account or credit card, keep track of bills or items you purchase by writing them down in a spreadsheet or inputting them into a budgeting app. Many apps allow you to manually enter your expenses without linking to an account.

Try free budgeting tools

There are many free budgeting tools, like WalletHub, that can help you track your expenses and come up with a realistic budget that fits your needs. These tools may be able to streamline budgeting while you’re using different budgeting strategies, such as 50/30/20 budgeting, zero-based budgeting, and envelope budgeting.

• WalletHub: Can create a personalized budget and track your expenses. Also provides access to free budgeting templates you can download.
• Google Sheets: There are a variety of budget templates that you can choose from.
• Open Office: Provides budget spreadsheets that you can download.
• Wally: Can connect with banking accounts in 70 countries to make tracking expenses easy.
• Good budget: Tracks expenses and create budgets based on the envelope budgeting method.

Pay yourself first

When you get paid, the first thing you should do is put money into your savings. This is called the “pay-yourself-first” method, and it prioritizes saving funds before paying any other bills. Having money saved up can help cover unexpected expenses like an expensive car repair bill, without hurting your monthly budget or sending you into debt. It can also let you save for retirement or for a big future purchase, such as a new car.

So, when you’ve figured out your income and what your typical expenses are, look at how much you can comfortably afford to save every month without overextending your budget. To make it easier to save, you can schedule an automatic transfer from your checking account to your savings account after each payday.

Prioritize your essentials

Allocate funds in your budget to necessary expenses, such as housing and groceries. These are things you need for survival. You should also include items like credit card and loan payments since they can greatly impact your credit if they are missed.

Essential items can include:

• Mortgage or rent payments
• Groceries
• Utilities
• Insurance
• Child care
• Transportation costs
• Minimum payments on loans or credit cards

Cut unnecessary spending

Once you’ve prioritized the essentials in your budget, look at the expenses not on the essentials list and see where you can cut down on spending. Working with limited income, it may seem like there is not much left over after taking care of priorities like your rent or mortgage, electric bill and food. However, you can save a few bucks by doing things like cooking at home instead of eating out or buying items on sale when you are grocery shopping.

The money you save now can be used for future financial goals like retirement or a down payment on a home.

Manage your debt

High-interest credit cards and personal loans can be a drag on your bank account and your credit score, especially if you are only making the minimum payment. After figuring out where you can cut down on non-essential spending, use the money saved to pay off your debt. Making an extra payment on top of your minimum monthly payment can allow you to get out of debt sooner and give you more wiggle room in your budget.

Reassess and adjust your budget

Monitor your budget to make sure you are meeting your money goals and not spending more than your income. If you are going over your income, look to see where you can cut down on spending.

Working with a low income, you may also want to consider switching up budgeting strategies. For example, instead of following the 50/30/20 rule, you may want to try the 70/20/10 rule, where most of your income will go toward covering your necessary expenses and less will be used for discretionary spending.

Negotiate bills

Talk with companies like your internet provider and see if they have any promotional offers that can lower your monthly bill. You can also get quotes from other competing companies and see if your provider will be willing to do a price match.

In addition, you can contact creditors to see if they can give you a lower interest rate or a more favorable payment plan. In a WalletHub survey, 41% of people who have asked for a credit card late fee to be waived have been successful, and 77% have been successful in getting their credit card company to improve their account terms in some fashion.

Look for free entertainment

Movie tickets, concerts, and sporting events can eat up a big chunk of your budget, but there are activities you can enjoy that won’t cost a cent. Look for public parks, community festivals and activities at your local library that are fun and won’t do damage to your budget.

Avoid impulse buys

Don’t add any unnecessary items to your cart whether shopping online or in person. At the grocery store, it helps to have a list to stick to. Also, avoid shopping while hungry or upset.

If you’re shopping online, automatically saving your credit card information on websites makes it easier to buy things you may not need. To put a hurdle in your way, remove your credit card from all online shopping sites. If you really need something, you will have to put your information in again to make a purchase.

Start an emergency fund

With limited income, it may feel like you have nothing left to put into savings at the end of the month. However, not having an emergency fund could leave you in deeper trouble. Regardless of whether you follow the pay-yourself-first method to save for the long-term, you will still need to have money put away to cover an unexpected expense, such as a pricey car or home repair bill.

Even though experts say you should save at least three months’ worth of your expenses, starting small, like aiming to have $1,000 in your emergency fund, may be easier to manage. Any amount is better than having nothing at all for a rainy day!

To make it easier to save, set up your checking account to automatically transfer funds to your savings. It will be one less thing you have to keep track of.

Increase your income

A low income may not be enough to cover all of your expenses, even while scaling back. If that’s the case, you may want to consider working overtime, asking for a raise, working a side gig, or switching jobs entirely to boost your income.

Use community and government resources

There are resources available to families with low income that have trouble making ends meet. Some of these resources are located right in your neighborhood and can help with things like your groceries and electric bills.

• Local food banks provide access to groceries for families in need.
• Supplemental Nutrition Assistance Program (SNAP) is a government program that gives low-income families food benefits to supplement their groceries.
• Medicaid is a government program that provides free or low-cost health care to low-income families.
• Low-Income Home Energy Assistance Program (LIHEAP) and Weatherization Assistance Program (WAP) are programs to help families lower energy costs.
• Lifeline is a federal program that reduces monthly phone and internet bills for families.

For more information, check out WalletHub’s budgeting tips.