How to Budget on a Low Income

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Are you wondering how to budget on a low income? You’re so not alone!

Figuring out how to budget is a right of passage. Something every young adult struggles with. The good news is you’re here, taking charge to make this budget thing happen. Go you!

And we’re here to help make this as painless as possible for you 🙂

Ok, first thing to know about budgeting: budgets don’t suck; they’re awesome!

There are three HUGE reasons to love budgets.

Budgets comfort you by showing, in black and white, that you can afford to pay your bills and won’t have to sing for your supper this month.
They outline exactly how much you can put toward savings each month. This is super important if you’re saving to make a dream come true. Or if you just want to be able to retire before you turn 90.
And they show you how much wiggle room you have to spend money on awesome stuff like books and travel (or clothes and make-up, you do you!).

Many people think, “oh, I’ll make a budget when I actually have money to spare.” But in my opinion, budgets are even more important on a low income. Because you don’t have much to spare, you need every dollar working for you. Oh, and it just sets up a good life habit of smart spending and saving.

So let’s learn how to budget right now, when it’s most important.

There are lots of different ways to budget, but today we’re going to look at three options that are all perfect for newbies. I especially love these options for lower incomes because they all:

put every dollar to work – we’re not wasteful!
build in savings – yep, savings are mandatory in any budget.
can be automated – set recurring payments for your bills and recurring transfers to your savings so your budget runs itself.
can focus on your goals, dreams, and values

With that, let’s jump in!

Option 1: The 50-20-30 Budget

The 50-20-30 budget is a popular option. It’s pretty simple, and it’s helpful when you’re starting out and you don’t know how much of your income should go toward what. It just says 50% of your take-home pay should go toward needs, 20% goes toward savings, and 30% goes toward wants.

So if you take home $1,625/month after taxes, for example, your budget would look like this:

Needs (basic housing, groceries, utilities, healthcare, and transportation): $812.50
Savings (emergency fund first, then your retirement and dreams funds): $325
Wants (entertainment, Starbucks, non-essential clothes and makeup, and everything else you could possibly want, but still technically live without): $487.50

Once you calculate your numbers, you just need to make sure your actual spending matches your budget. Like, don’t move into a $700 apartment if your needs budget is $812.50 because you won’t have enough left for the rest of your essentials.

Makes sense, right?

Option 2: The 60% Solution

The 60% solution is similar to the 50-20-30 budget, but instead of making the distinction between needs and wants, it draws the line at “committed expenses”. Committed expenses include all debt, all bills, and all basic living expenses. And your committed expenses should stay under 60% of your take-home pay.

You’ll notice that some of this 60% are needs and some are wants. Your Netflix bill, for example, isn’t a need, but it is a bill you pay every month, so it goes into that 60%.

The remaining 40% is divided equally between retirement, long-term savings, short-term savings, and fun money.

Using the same example of having take-home pay of $1,625/month, your budget would look like this:

Committed expenses: $975
Retirement: $162.50
Long-term savings: $162.50
Short-term savings: $162.50
Fun Money: $162.50

So the bad news is that you have less to spend every month when you use the 60% Solution instead of the 50-20-30 Budget. The good news is that you save more, and that will pay off big for you later.

Option 3: The Signature-Mix Budget

Don’t want to commit to 50-20-30 or 60%? No problem. You can make up a budget that works for you! Look at your current spending, figure out where you’d like to see changes, and create a Signature Mix of expenses that suits your unique lifestyle.

Side note: You can get a copy of your own Signature Mix Budget Calculator at the end of this post 😉

Ok, so here’s how to budget with your own Signature-Mix Budget:

List your income amounts after taxes
List your actual current expenses. For a good, realistic estimate of your expenses, go through your credit card and checking account statement for the last two or three months and average your monthly spending on things like gas, groceries, toiletries, etc.
Look over your spending. Do you see areas where you’d like to cut back? How about areas you’d like to increase (*cough* savings *cough*)? Seriously, savings now is mandatory if you ever want to stop stressing about money.
Play with your numbers until you find something you can live with.

What if You Can’t Make Your Budget Work?

If your budget shows that you’re spending more than you’re making, you only have two options:

spend less and/or
make more

That might sound harsh, but it’s actually kinda nice because it’s so straightforward. There’s no crazy scheme to get around this. You simply need to spend less and/or make more.

Spending Less

Remember how we just said savings is mandatory, not optional. We’re serious. I know cutting savings sounds like the obvious, easy solution when you can’t make your budget work, but you will pay for it hard later. Like $831,751 hard!

So try cutting your other expenses, starting with the ones you care the least about. Here’s a list of smart ways to cut expenses to help you get started.

Making More

And if you’ve cut spending as much as you can (or as much as you’re willing to), you just need to make more money.

Lucky for you, you live in the age of freelancing and making money online. There are tons of ways to add more cash to your life.

Check out some of our recent money-making posts:

How to Budget on a Low Income