Now, there are a lot of guides to teach people how to budget to maximize their money. Yet, low-income budgeting for people with low income seems unaddressed.
Budgeting for low-income individuals may seem difficult or even impossible. But just because your income may not be high that does not mean it is any less important.
Let’s discuss the major steps needed to budget for people who don’t come have a middle class or high income. These steps will help you stay on top of your money and allow you to be more financially stable.
Grab Your Financial Documents
To understand how much money you have, it’s important to get all your financial documents.
Here is a list of items that you should gather:
- Bank Account Statements
- Independent Contractor Earnings Reports
- Credit Card Statements
- Investment Statements (stocks and bonds)
Your paystub will show you exactly how much income you producing from your job. When reviewing your paystub. It’s important to understand the difference between your gross and net income.
Gross income is how much you earn before taxes, medical expenses, and other deductions.
Net income refers to how much you receive after all your deductions.
For budgeting purposes, it’s ideal to use your net income.
If you’re an independent contractor for companies like Uber, Lyft, or the like. Determine what you earn on a weekly basis. This should be a straightforward process by logging into your account.
Bank and credit card statements are also necessary. These statements will show you want you to spend your money on. If you use cash. For two weeks, save all your receipts. Then categorize them and put them on a spreadsheet.
Determine Your Financial Priorities
Food, shelter, and clothes are the priorities in life. While there are other necessities. Food, shelter, and clothes are what should be the center of where you allocate your money.
What that in mind, review your spending habits to determine if you ‘re spending money in those areas.
If you are, great! If you’re not. Replace your spending.
For food, try to make your meals and prep for lunch. Do not spend money outside and that can be a significant burden to your budget.
Clothes should always be a priority. It’s unnecessary to spend significant money on clothes. Stop going to malls and shop at closeout, department, and discount stores. Ross, Marshall, Walmart, and Target have trendy affordable clothes.
Your rent or mortgage should be where most of your money goes. It’s most people’s highest expense. There are few ways to save in this area. Most people with low income save on this expense.
While food, shelter, and clothes are the major priorities. There are other priorities as well. Like childcare, car payments, transportation, and education. Evaluate those costs to see if there are ways you can save there.
Determining your priorities is the core of budgeting.
Setup a Checking and Savings Account
Research has found that individuals who don’t make a lot of money don’t have bank accounts. If you have a job, find out how to direct deposit your check into your bank account.
This will help you avoid unnecessary check-cashing fees.
Most banks offer bank accounts to people of all income levels. Usually, there are no fees to set them up and they have a small minimum balance of just $5.
While there is a host of online and traditional banks for you to use. We recommend you find a local credit union to open up an account.
Credit unions have more favorable small balance requirements. And have better customer service.
Be careful of overdraft fees. Overdraft fees and other fees can be detrimental to you managing your money.
Once you decide on the bank. Open three accounts. Two accounts will be a savings account and the other, a checking account.
The first savings account will be for you to save money for goals that you have. For instance, if you are saving for a vacation, you can put a part of your income into that account.
The second savings account you’ll use as an emergency fund. Whatever money you put into that account, don’t touch it is.
The last account is a checking account. With a checking account, you will typically get issued a debit card. The debit card is what you will use for your everyday expenses. The purpose of a checking account is to enable you to take money out of your bank account fast and easily.
Of all the tips mentioned, stetting up a bank account is the most important to budget for low income.
Put Money in Your Savings Account
As mentioned before, setting up a savings account is the best thing to do if you are looking to save for the future. However, most people set up a savings account and never put money into it, which is a complete waste.
A simple rule to follow is the 80/20 rule or also known as the Pareto Principle. The rule says every paycheck put 80% of it into your checking account, and 20% into your savings account.
A better allocation technique is to follow the 50/30/20 rule. Allocate 50% to your needs, 30% to wants, and 20% into your savings account.
Setup Automatic Payments for Your Bills
Once you set up a checking and savings account, set up automatic payments to help you budget for low income.
Putting your money on autopilot is one of the best things you can do. It holds you accountable for your payments.
Setting up automatic payments helps you to:
- Saves your time and money – You don’t have to manually input your payment details every month.
- Payment Security – It eliminates the worry of having overdrafts in your bank account. Further reducing the chance of late fees or penalties.
- Regular Cash Flow – Knowing the exact date your money will be deducted helps you plan and manage expenses more effectively.
Invest in yourself
Once you have saved up money for yourself. It is always a good idea to invest in learning.
There is no better investment than investing in yourself.
Investing in yourself will help to hopefully move you from low to middle income.
There are many platforms you can learn from free and paid.
It’s no longer required that you go to a college or university in person to learn. You can do it all online. There are several online platforms like Masterclass, Udemy, Skillshare, Coursera, and Mindedge. Most of these platforms offer courses and certificates for under $100 per program.
We recommend Udemy. It’s the most affordable platform and you get a certificate of completion at the end. Most courses you can find below $20. The courses offered are by skilled professionals with expertise in their industry.
If you find $100 to be out of your budget. You can always check Youtube and LinkedIn Learning to find subjects to learn. You may not get a certificate of completion, but you’ll be always to mention the skillset on your resume.
If you don’t invest in learning or yourself, you will never move up on the income ladder.
Constantly evaluate your low income budget
You should have a blueprint on how to budget on a limited income.
Here are a couple of tips to keep yourself in check, and to assess if you are still following your blueprint.
- Schedule monthly assessments of all your transactions
- Track your spending and income
- Learn from your spending trends
- Have an accountability partner
The greatest thing you can do on a limited budget is to invest in educating yourself. Learn, learn, learn.