Have you figured out what your financial goals will be for this year? Whether you want to pay off debt, save more, start investing, or just stop living paycheck to paycheck, you’ll need to start by creating a realistic budget to help you reach your goals.
Back when I was in college and didn’t earn much, I simply spent money as it came in and was convinced that I didn’t earn enough to budget properly or even consider saving money. Now I realize how wrong my mindset was and that you can start budgeting even if you have a low income. As a matter of fact, you should start budgeting with a low income so you can improve your finances over time.
Key Benefits of Effective Budgeting
I’m not going to dwell too much on the fact that I think budgeting is pretty awesome, but if you need some convincing, here are the best benefits you’ll receive from creating and living on a budget.
- You’ll know where exactly where your money is going – This is key!
- You’ll know exactly how much you have to spend on certain expenses – This will help you avoid overdrafting and getting into debt
- You can finally set realistic money goals and see progress much sooner
To sum it up, budgeting is one of the best ways for someone to start improving their finances from the ground up. Budgeting when you have a low income is definitely more difficult, but it’s not impossible. Here are some key tips to help you get started.
Stop Overthinking It
A budget is just basically a spending plan for your money. You’ve probably budgeted before and just never realized it. You may have gone to the grocery store one week and told yourself that you could only spend $85 on food. That was budgeting.
The key to budgeting success is making it a habit and doing it actively so you are fully aware of what you’re spending and why.
Some people may argue that budgeting is limiting and boring because it tells you what you can’t do. On the contrary, budgeting just helps you get realistic with your situation and work effectively to improve it. Unless you’re filthy rich, you’re going to have to save no to some things but that also means that you’re saying yes to something else.
If you spend all your extra money on fast food one month because you don’t have and implement a budget, that’s going to mean that you can’t spend your money in another area of your life that might have been a priority.
In that case, saying yes to expensive fast food meant that you had to say no to an important need that you had. Again, budgeting is simply a blueprint plan of how you’ll spend your money and use it to get ahead. People don’t budget for the sake of doing it. They budget with an end goal in mind.
There are no strict rules and no minimum income requirement to get started. If you earn $500/month, you can create a budget with that money.
Track Your Spending
You’ll need to start tracking your income if you want to create a realistic budget regardless of what your income is. Mint is one of the best free tools to use to track your expenses. Mint connects to your checking account, savings account, and other credit cards and can even pull up your debt balances.
Mint will digitally track each expense you have and categorize it. You may need to manually correct the way Mint categorizes some things, but overall, it provides a transparent look at your spending habits.
If you tend to make more cash transactions, you’ll need to hold onto your receipts and jot your purchases down in a notebook or in an Excel spreadsheet.
After you know what you’re spending, you can start to be honest with yourself and identify which expenses, you can trim or cut completely in order to reduce your spending. If you think you’ve already minimized your expenses, check again and be more critical.
Do you have an expensive cell phone plan or a pricey smartphone? You probably don’t need it if you’re having trouble budgeting.
Do you buy restaurant food for lunch instead of bringing your own? Do you make impulse purchases that are fueled solely by emotion? Do you have cable? Are you paying for a gym membership or a subscription that you don’t use? Can you get a better quote on your auto insurance to cut your premiums?
Cut out unnecessary purchases and work on finding more affordable ways to do things. It might seem like a sacrifice at first, but it will be worth it once more of your money starts to free up.
Write Out Your Budget with Your Goals In Mind
To make sure budget official, you need to write it down somewhere. List out all your necessary fixed and variable expenses, then list out expenses that tie in with your goals. For example, if one of your goals is to build an emergency fund this year, you can add a savings category to your budget. Don’t be afraid to start small either. Every bit adds up.
Finally, you can add in expenses that are not necessities if you still money left to spare.
Make Adjustments as Needed
When I first started budgeting with a low income, I set my monthly entertainment budget at $50. At the time, that was all I could afford so I made it work. Now, my entertainment budget is still the same because I’ve learned to adapt and find tons of frugal ways to have fun.
If I would never have created a budget and stuck to it, I probably would still be overspending on unnecessary expenses and being unable to reach my goals.
Be sure to adjust your budget based on your needs and lifestyle. If something doesn’t work, try not to force it but if your expenses exceed your income, you’ll need to adapt or find a way to boost your income.
For example, if you realize that you can’t comfortably afford your rent, you may need to find another place to live that’s more affordable or get a roommate to reduce that particular expense.
If you want to save $300 per month but your current budget says you can only afford to save $150 per month, try to earn some extra income on the side to even out your budget. If you need do to something flexible to earn extra money. There are many opportunities to consider. In this post, you can find 10 real ways to earn an extra $1,000 per month.
You can also check out this post to compare 50+ legitimate work from home opportunities you can try out.
Creating a budget forces you to get real with yourself and it can help you gain the focus and structure needed to reach your financial goals. Don’t let your income turn you off from budgeting. Start tracking your spending, trimming expenses, and remember to be realistic and adjust the numbers until you find what works for you.
Do you have a budget? When did you first start budgeting and how has it helped you reach your goals? Have you ever been intimidated by budgeting due to your income?