How to Budget on a Low Income

How to Budget on a Low Income

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Cody

Founder at Fly to FI
Cody is a personal finance junkie who constantly tracks his net worth with Personal Capital.

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The following is a guest post from Tomas at DollarBreak.


Let’s face it – most jobs just don’t pay enough. Sure, you may have a salary that’s able to keep your needs in check, but it’s definitely not enough to let you live your life in luxury. And even if you do end up with some spare cash after deducting all your regular expenses, it can be hard to know what to do next. Do you spend it on that item you’ve been wanting to buy for some time, or do you save up for a bigger splurge in the future, like a vacation? Would it be better to invest that money instead?

If you find yourself asking questions like these, don’t worry – you’ve come to the right place. We’ve got a few tips that’ll help you spend your income wisely and allow you to reach those financial goals that you’ve always wanted to reach.

Make a Realistic (and Accurate) Budget

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The first step in budgeting a low income is, well, planning a budget. But it isn’t as simple as it sounds – you’ll need a lot more than just rough estimations for your spending if you want to effectively save up. As a general rule, keep your budget as detailed as possible, and avoid rounding off your budget as often as you can.

For example, an element universal to any monthly budget would be housing. Housing usually makes up the majority of a typical household budget, with an average of 33% set aside for it. By getting the average amount of expenses paid in the past months, you can predict what your spending should look like in the future. If it’s something that you can reliably measure the price of (such as food), then list them in your budget accurately down to the last cent. You can add some allowance for all parts of your budget if you feel like prices may change.

Prioritize The Loans and Expenses First

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Whenever you receive that paycheck, it can be tempting to spend it immediately on something you can afford with it. If you want to maximize your budget, though, then that might not be such a good idea. Spending your money on other things rather than existing loans and expenses can be disastrous, especially when their respective interest rates accumulate more debt over time.

So as to not snowball your debt into unpayable levels, make sure to pay them whenever you can. Try focusing on getting rid of your loans first, then your usual expenses, and only then can you use the remaining money for a little splurging. Pay off the most important loans first, such as the ones with the highest interest rates or largest balances. This is actually a technique suggested by many financial experts, including Dave Ramsey, who includes it in his famous 7 Baby Steps method.

Use Money Tracking Apps

If budgeting by yourself seems exhausting or difficult, then you can always use apps to do the work for you instead. Money tracking apps such as Mint and Personal Capital are great tools to help you know what you’ve been spending on and will give you a clear picture to decide on what to do next.

Money tracking apps don’t just list down your budget for you – they analyze your financial data and analyze it, giving you graphical representations of your spendings. Some services even allow you to link your credit card so that you can seamlessly synchronize your purchase history with them.

There are quite a few money tracking apps to choose from, each with their own set of benefits. You can find plenty of articles online that compare different apps. For example, you can see a comparison of Personal Capital vs Mint, two famous money tracking apps. Spend some time finding one that fits your preference and style the most, and get started from there.

Treat Yourself Once Every Now and Then

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Wait, isn’t this supposed to be an article on budgeting? Jokes aside, it’s good to keep yourself happy first, and treating yourself to a good meal or some fancy clothes wouldn’t hurt too much. Sure, you may be spending more than your loans and expenses, but it’s definitely better than tiring yourself out with no self-rewards at all.

Think about it – what motivates you to work and earn money? Unless you’re a bona fide workaholic, you probably just want to make ends meet and enjoy life as much as possible with what you can afford. By rewarding yourself with what you want every now and then, it’ll give you the drive needed to continue working and earning even more. The last thing you want is a boring, routine life when you’re budgeting.

Remember, Every Dollar Counts

Even if you do have the money to immediately buy something you like, it’s better to save up for something that’ll be better in the long run. By using these methods to budget on a low income, you’ll be able to save up for a car, apartment, or any other big projects you have in mind, given enough time.

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