How to Budget on Little Income
When working with a small income, budgeting is a little intimidating. You may not believe that budgeting is even necessary — especially if you’re unaware that your income is not covering your expenses. However, budgeting is crucial to your financial survival. Start off with a realistic view of your finances and use your budget to make future plans, including a goal to increase your income in the short and long term.
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Instructions
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Prioritize your bills in order of importance or urgency in a written budget. Add all your bills together and subtract them from your current income. Determine your budget shortfall or excess amount (if any). Remember to include the spending money you need for gas, groceries, transportation and other everyday needs. If you find you have a shortfall, you now know through prioritization which bills you cannot afford to miss.
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Call your creditors to negotiate if necessary, especially if you have a shortfall. Negotiate a temporary payment plan if possible. Contact a reputable nonprofit credit counseling agency to apply for a consolidation loan to consolidate your debts into one lower, more convenient payment.
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Reduce your entertainment budget aggressively regardless of whether you have a shortfall or a surplus. With a small income you must run your budget efficiently at all times to keep up with the cost of living. Eliminate your costs for eating out, partying and shopping for items you don’t need to live.
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Review your short-term debts (to be paid off within about one to three years). Apply part of your budget surplus (if any) to the principal on these debts. The faster you pay off these debts, the more money you free up from your small income for other needs in the future. Avoid replacing those debts with new accounts in the future; commit to a cash-only lifestyle.
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Use the envelope method instead of debit cards when you’re working with a small income. Withdraw your spending cash (per your budget) for the month or week in advance, put it in an envelope and record each cash withdrawal you make from the envelope for everyday needs. It is difficult to keep track of many different small charges on a debit card.
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Analyze your expenditures on credit cards for the past three months. Determine which of those charges were necessary and which could have been avoided. Keep this calculation in mind the next time you think about using your credit card. If the percentage of unnecessary charges is high, cut up the card, pay off the current balance and get more serious about your budget to cover your necessary costs.
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Save any bit of cash you can every month -- even if it is just $10. Put it away into a savings account that you have a difficult time accessing, like an online bank account that has a three-day or more waiting period to access the cash. It is important to build up an emergency fund (ideally three months worth of bills) when on a limited income.
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