2024 might be a tough year with inflation. Whether you’re having difficulties or working a low-paying job, having a low income makes it difficult to budget. However, there are many tips that apply to anyone on saving, no matter the income. The most important of all is to learn by doing, starting with saving every possible dollar because every bill counts. I’ll show you the things you can do to feel more in control of your finances.
Guide Summary
How to Create a Budget with a Low Income
Even with a low income, you can still make a plan for your money. Adapt each of the steps to your situation. Following the guide step by step helps you not get overwhelmed. By practicing each step at a time, you can see small progress that will accumulate over time, similar to developing a habit.
The best way to budget is to use your time to organize your spending and have a better knowledge of where your money is going each month. You can do this manually (with pen and paper), digitally, or by using apps that help you track your budget. The main goal is to control your expenses so they are less than your income every month.
1. Document Your Income
No matter how much you make, you need to know how much you have to spend each month. List all your sources of income (salary, interests, part-time work, side hustles, scholarships, etc.). Also, list when you have the income available to organize your expenses over time. It's important to have your monthly income well-organized.
Knowing your income gives you a clear picture of your financial standing. This helps you avoid overspending and ensures you have enough to cover essential expenses. If your income fluctuates, make an average estimate to guide your budgeting process.
2. Write Down Your Expenses
Organize and document your expenses by categories. Every time you have an expense, document it using an app or manually. Doing it after every expense helps build the habit of tracking it instead of reviewing all expenses at the end of the month. Categories generally include transportation, food, home, and utilities.
Tracking expenses helps you identify spending patterns and areas where you can cut costs. By consistently recording your expenses, you gain better control over your finances, making it easier to make informed decisions about your spending habits.
3. Organize Your Fixed and Variable Expenses
Identify and separate your fixed expenses (e.g., mortgage, rent, electricity, water) from variable expenses (e.g., groceries, entertainment, clothing). This helps in understanding where you can cut costs.
Fixed expenses are those that remain the same each month, while variable expenses can fluctuate. By distinguishing between the two, you can prioritize paying your fixed expenses first and look for ways to reduce your variable expenses.
4. Set Financial Goals
Setting short-term and long-term financial goals can help you stay focused and motivated. Your goals might include paying off debt, saving for an emergency fund, or investing for the future.
Having clear financial goals gives you a purpose for your budgeting efforts. It provides a sense of direction and helps you stay disciplined in your spending and saving habits.
5. Adjust Your Budget as Needed
Your budget is not set in stone. Regularly review and adjust it as needed based on changes in your income or expenses. Flexibility is key to maintaining a realistic and effective budget.
Life circumstances can change, and your budget should reflect those changes. By regularly reviewing and adjusting your budget, you can ensure it remains relevant and effective in helping you achieve your financial goals.
Tips to Cut Your Expenses
There are many ways in which expenses can increase without you noticing. To avoid this, make some sacrifices on things that are nice to have but not necessary. If you invest the money that you save, you will accumulate more, helping you enjoy these "nice to have" items in the future.
1. Cook More at Home
Skipping restaurants can save a lot of money. Cooking at home is much cheaper, about 2 to 3 times less expensive. Plan your meals, buy ingredients in bulk, and make use of leftovers.
Home-cooked meals not only save money but are often healthier. You have control over the ingredients, portions, and cooking methods, leading to better nutrition and well-being. Plus, cooking can be a fun and rewarding activity.
2. Optimize Your Current Contracts
Each year, change your electricity, internet, water, and gas providers to find cheaper alternatives. This may involve changing your time for money.
Switching providers can lead to significant savings. Many companies offer promotional rates to new customers, and by regularly reviewing and switching contracts, you can take advantage of these lower rates.
3. Don’t Buy New Tech or Clothes
There are many websites to buy second-hand items online or in person. Go for thrift shopping for clothes and tech. Websites like Backmarket or eBay offer protection if items don’t work.
Buying second-hand items not only saves money but is also environmentally friendly. You can find high-quality products at a fraction of the cost, reducing the demand for new goods and promoting sustainability.
4. Sell What You Don’t Use
What you haven’t used in a year should go. Use websites for buying and selling second-hand items. Organizing your home by selling unused items can generate extra income and create more space. Platforms like eBay, Craigslist, and Facebook Marketplace make it easy to sell items locally or online.
5. Cut Out Monthly Services
Do you really need Netflix, Prime, Spotify, etc.? Share these services with friends or family, or use the library, which offers many media and books for free.
Monthly subscriptions can quickly add up. Evaluate which services you truly need and consider sharing accounts with family or friends to split the cost. Many libraries now offer digital access to movies, music, and books, providing a free alternative.
6. Go to the Library
Libraries are often free or very cheap and offer a huge variety of resources, including console games, instruments, board games, books, and media.
Libraries are an excellent resource for entertainment and education. They offer free access to a vast array of books, movies, music, and even workshops and events. Utilizing library services can save you money and provide enriching experiences.
7. Use Public Transportation
Public transportation is usually cheaper and more sustainable than driving. Share rides, bike when possible, especially in the city center.
Using public transportation reduces the cost of gas, maintenance, and parking for a car. It also reduces your carbon footprint. If public transportation isn't an option, consider carpooling or biking as alternatives.
8. Repair Instead of Buying New
Try repairing broken items instead of buying new ones. There are many tutorials online to repair almost anything. Repairing items can extend their life and save you money. There are many online resources and tutorials available that can guide you through repairing a wide range of items, from electronics to clothing.
9. Insurance
Get only the insurances that you really need and periodically check if you need as many as you have to cover your possible risks. Reviewing your insurance policies annually can help you identify unnecessary coverage and find better rates. Ensure you have the essential coverage you need, such as health, auto, and home insurance, and avoid over-insuring.
10. Use High Cashback Cards
Use credit cards that give you high cashback on purchases. Research to find the best options in your region. High cashback cards can provide significant savings on your everyday purchases. Look for cards that offer the highest cashback rates on the categories you spend the most on, such as groceries, gas, or dining out. I wrote this post summarizing the cards giving more cashback and one of them is giving me 8% of everything I buy plus perks on many shops.
11. Compare Grocery Shops and Use Coupons
Download apps from grocery stores to compare prices and use coupons to save about 5%. This initial setup will save money over time. Comparing prices and using coupons can lead to substantial savings on your grocery bill. Many apps and websites offer digital coupons and price comparison tools to help you find the best deals on the items you need.
12. Use Apps that Pay You for Walking
Apps like Weward pay you for walking. This might not be much, but it's free money for tracking your steps. Earning rewards for walking can motivate you to stay active while also providing a small financial benefit. These apps usually offer points or cash for steps taken, which can be redeemed for various rewards or cash.
13. Look for Free Events in the City
Instead of expensive outings, search for free alternatives like sports events and flea markets. Many cities offer a variety of free events and activities. From festivals and concerts to art exhibits and outdoor movies, there are plenty of ways to enjoy yourself without spending a lot of money.
Find a Way to Increase Your Money
A vital point to budgeting on a low income is to try to increase the income itself. Here are some ways to do so.
Ask for a Raise
This is probably the most time-efficient way to increase your income. Many resources online can help you prepare to ask for a raise. Asking for a raise requires preparation. Research the average salary for your position, highlight your accomplishments, and practice your pitch. Demonstrating your value to the company can increase your chances of receiving a raise.
Get a Side Hustle
Start a side hustle that requires time but no initial money. Some ideas include:
Help translating
Start a YouTube channel
Start a blog or website
Use affiliate marketing
Write an ebook
Side hustles can provide additional income and help you develop new skills. Choose something you’re passionate about or interested in to make the experience enjoyable. Over time, a successful side hustle can significantly boost your income.
Work Overtime
If possible, take advantage of overtime opportunities to increase your income.
Working overtime can provide immediate financial benefits. It’s an effective way to earn more money without the need for a second job. However, be mindful of maintaining a healthy work-life balance to avoid burnout.
How Can You Protect Yourself Even Further?
Avoiding debt and saving for emergencies is crucial for financial stability. I've created this post in details on how to avoid debt and get financial freedom but here I summarize the two most important points.
Save Enough Money to Cover Emergencies
An emergency fund is essential. Save enough to cover a few months of expenses to handle unexpected costs without going into debt. Building an emergency fund provides a financial safety net for unforeseen expenses, such as medical bills or car repairs. Aim to save at least three to six months’ worth of living expenses to ensure you’re prepared for any financial emergency.
Avoid Debt
Avoid borrowing money as much as possible to prevent paying high-interest rates. Having an emergency fund helps you avoid borrowing. Minimizing debt is crucial for maintaining financial health. High-interest debt, like credit card debt, can quickly become unmanageable. Focus on living within your means and using credit responsibly to avoid falling into debt.
Summary
Every dollar counts. There are many tips you can follow to save. Start by organizing your income and expenses, cut unnecessary costs, find ways to increase your income, and protect yourself from financial emergencies.
By implementing these steps, you can better manage your finances, even on a low income, and work towards financial stability and peace of mind.
Implementing these strategies can lead to significant improvements in your financial situation. Remember, it’s not just about cutting costs but also about making smart financial choices that will benefit you in the long run. Stay consistent, review your progress regularly, and make adjustments as needed. With determination and careful planning, you can achieve financial stability and build a secure future.
Let me know on the comments if you have more strategies that can help budgeting.
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