Doing anything with a low income is difficult. Or is it? Having a low income does not have to be the end of the world. If you are struggling, then maybe you just need to learn how to build a budget — and stick to it. Building a budget on low income can be challenging if you don’t know how. So the first thing you need to do is learn about financial literacy and what financial literacy organizations are out there to help you. Once you do that, you will be ready to start learning what a budget is and how you can use it to your own advantage.
How to Create Your Own Budget on Low Income
The first thing you have to do when creating your own budget is gathering information. You need to know how much money comes in and how much money goes out of your bank account every month. This means knowing your income and your expenses. When you know that you are making a budget on low income, you may feel a bit discouraged. But do not worry. You are definitely not the only one in this situation. In fact, you belong to the majority, and if they manage to budget on low income, so can you. So let’s see how to do that.
If you have a set salary, then you have a fixed monthly income, but if you have an hourly job, then your income may slightly change month to month. If you work an hourly job, then you can use an average monthly salary in order to make your budget. Your expenses can be either fixed or variable.
Types of Expenses
Fixed expenses are expenses that occur every month, at the relatively same price, such as rent, gas, electric, water, a gym membership, your Netflix account, and student loan payments.
Variable expenses are expenses that you do not necessarily have every month, or that the total cost is different every month. This could include groceries, eating out, going to the movie theater, or buying a present for your friend’s birthday. These expenses cannot necessarily be planned months in advance, but they can be budgeted; you can — and should — budget some extra money as a buffer, for things like fun — such as going out with your friends — or for emergency — such as emergency medical care.
And Now – Let’s Make That Budget on Low Income
Once you have gathered all the information you need, it is time to start making your budget. Remember, the tips here are just general, but your budget is specific to your wants and needs.
You need to prioritize what is important to you in order to make a budget that will help you. If you don’t adjust your budget according to your own personal financial goals, then it will be impossible for you to stay on budget and continue to hold yourself responsible. When your income is low, this becomes more difficult, since you really need to focus on the most important things and leave everything else until you see if you will have enough money for it.
Needless to say, utility bills and mortgage/credit card payments should be your priority. After you secured that you have electricity, water, heating and that you do not fall behind with your payments, then comes everything else. Here’s where you want to see how much money you have left in your budget, and what you want to finance the most.
The End Result
You know made a list of your priorities. Paying your bills on time and paying off your mortgage/credit cards/debt is in the top of that list. Everything else after is ordered according to your wishes and needs. Once you know why you have a budget — and understand how it can help you achieve your goals — you will be much more likely to stay on track. Also, don’t forget to keep your goals realistic. Realistic goals allow you to actually see progress. If you have unrealistic goals that you cannot meet, then you co
uld be discouraged from sticking to any parts of your budget.
— Loanry.com | Loan Shop ? (@LoanryStore) July 25, 2019
What is Financial Literacy?
To be able to make the above-mentioned budget and stick to it, it is wise to educate yourself. We mentioned a couple of things you should keep in mind, and we’re going to go over them right now. The first is financial literacy. According to Dave Ramsey, it involves “[helping] people develop a stronger understanding of basic financial concepts…[in order to]…handle their money better.” Basically financial literacy is what you are doing right now. You are here to learn more about basic financial concepts — such as budgeting and debt — in order to handle your money better.
Though there are different ideas of what financial literacy entails, some believe that there are five key components of financial literacy. These key components will help you handle your money better and have an overall healthier relationship with money. The five components include understanding the basics of budgeting, understanding interest rates, prioritizing saving, understanding and being able to recognize credit-debt cycle traps, and identifying theft issues and safety.
The Importance of Financial Literacy Components
Budgeting is important for many reasons, but one of the biggest reasons is that it helps you keep yourself accountable when it comes to your spending. Understanding interest rates can help you save a lot of money over time, by making sure you don’t end up paying much more than you need to over time. Prioritizing saving is essential to financial literacy because saving now will be a better investment in your future. Now that you know how to budget on low income, you will be able to manage your finances more smoothly and it will definitely help improve your situation.
For instance, you may want to buy the newest iPhone model coming out, even though the last version still works perfectly, but if you save the money, you could end up being to get yourself something much better in the future — such as a family trip.
Understanding the credit-debt cycle traps can help save you a lot of trouble in the future, since it is much easier to ruin your credit than to make your credit better. Identifying theft issues and safety is a big issue in our modern, technological world. Because of all the secure data we store and share online, identity theft is more likely to occur, and thus the safety of your financial accounts can be at risk.
Financial Literacy Charities
This may all sound a bit overwhelming, but you do not have to figure this all out on your own. There are organizations called financial literacy charities that were created to help people like you better understand money and debt. These organizations know that once you understand the basics and have achieved financial literacy, you will be better equipped to make important financial decisions on your own.
If you are a sailor or a family member of a sailor, then you should look into the new MyNavy Financial Literacy app. This app was created just for sailors and their families to achieve financial literacy. Because so many Americans live paycheck to paycheck, the Navy decided to create this app in order to help sailors and their families maintain all aspects in their careers and lives. This app is just a part of a larger program — called Sailor 2025 — to empower sailors.
The Motivation for Budgeting on Low Income
Budgeting can be hard, especially budgeting on low income. If you aren’t very organized, good at math, or patient, then making a budget can be very time-consuming and tedious. On the positive side, once you have made one or two budgets, it will be much easier for you to make your next budget. Over time, once you have your own system in place, budgeting will get easier and easier. Plus, once you have your goals set and your own budgeting method down, it may be as easy as plug and chug.
If you have a low income, then making a budget is very important. It is essential — no matter what your income level is — to not live above your means. Though this is easier said than done, it is much easier done when you have a budget. If you have a better understanding of your financial situation — how much money is coming in and how much money is going out per month, then you can better plan how to spend your money in an efficient manner.
What’s Important When You Budget on Low Income
Budgeting is all about organization and prioritization. In order to efficiently make a budget on low income, organization is key. I personally like to use Excel for my own personal budget. Excel has rows and columns, which can make your budget more comprehensible just because it is visually more aesthetically pleasing. Plus, Excel will do all of your calculations for you, reducing room for error. Prioritization is essential in a budget on low income because it is important to understand that some things are necessary to live and some things are just nice to live with. If your goal is to spend less or save more, then it is necessary to be able to prioritize your spending, so that you can determine what it is okay to live without — and thus take off of your budget.
How to Negotiate Your Bills
While it is important to be realistic when making your budget, you should still know that you have many options and are not confined to just one path. There are some fixed expenses you have every month, but some fixed expenses may be more variable than you think. It is possible to negotiate some of your current bills.
If one of your goals when creating your budget on low income is to decrease expenses, then there are many different ways you can do that. The most obvious options are eating out less, decreasing the number of times per week you buy your morning coffee out — versus making coffee cheaper at home, and not spending as much money per month on entertainment — such as going to the movies, bowling, or attending sporting events. But that’s not all you can do. If you want to decrease your fixed expenses, then consider some of the following ways that you can negotiate your bills:
Cut Monthly Subscriptions
Do you have a gym membership but don’t really go to the gym? Do you have a Netflix and Hulu account but stopped using one of the services months ago when they took down your favorite show? If you are paying money every month for a service you do not use, then that is practically money in the trash. If you have memberships and subscriptions for services you don’t currently use, then consider cancelling them until you are ready to use them again.
In today’s society it is hard to live without Internet. Whether you use the Internet at home for business, pleasure, or both, you probably don’t want to give up your Internet service. If you also enjoy your cable television programming — which can be expensive, then consider bundling your Internet and cable services. This will allow you to keep both services, but at a lower negotiated price. Pay less for more.
Talk with Customer Service
If you are not ready to get rid of a service yet but cannot continue to afford the service at the current price, then talk to the company’s customer service. Though their power may be limited, their job is to make you happy and give you a good image of the company. Whether this is to decrease your monthly cell phone bill or cable bill, just talking to customer service about your dissatisfaction with the price of the service could lead to a lowering of your monthly bill.
What is Debt?
Another important concept to know about when you have a low income is debt. You are probably aware of this and maybe even have some personal experience. That is no surprising since debt is something that most people encounter. But, as someone with low income, you want to have as little debt as possible and to get out of it quickly, so it would not be an additional burden.
The first step to getting out of debt is to understand what debt even is. Of course debt refers to money that you owe to another party — generally a company or lender. But what is your debt comprised of? To find out more about your personal debt, you can use many online financial education websites, that can give you invaluable information. go here. This site will help you connect and organize your accounts, so that, with this bigger picture, you can make better future financial decisions.
You have several options to get out of debt. Budgeting is a great one, but it takes time and practice. Another option is to think about a loan to get out of debt.
How to Calculate Your Debt to Income Ratio
Now that you have a better idea of what your debt means to you, you should calculate your debt to income ratio. Your debt to income ratio “looks at how much money you owe per month versus how much you earn.” Because of this, knowing your personal debt to income ratio could be very beneficial for you. Knowing this ratio can give you a better picture of how you are doing financially. While it is obvious that you should not spend more per month than you bring in per month, but knowing how much of your income automatically goes to debt can help you determine what you can spend the rest of your income on. On average, the recommendation is that your debt to income ratio is less than 43% of your total income.
How to Create an Emergency Fund
Besides just getting by from paycheck to paycheck each month, it can be a good idea to also create an emergency fund. As you can tell from the name “emergency,” this fund can be used on anything that is unexpected. For instance, if you have a car wreck and cannot get to work without a car, then you will need a replacement vehicle. If you have an emergency fund, then you are more likely to be able to get the replacement vehicle without incurring as many immediate financial losses.
An emergency fund is also essential to helping you get back on your feet after a medical emergency. You may still need to get a personal medical loan to get you back on your feet, but if you already have an emergency fund in place, then you will not have to get as large of a loan out — which means less to pay back (with interest) in the future.
Of course, creating this fund can be difficult if you are already struggling to make ends meet. How can I put money aside when I can barely cover the fixed expenses I have? This is where budgeting comes in. If you put a small amount of money aside every two weeks, or every month, it will accumulate over time. Instead of eating out, or picking up a coffee on your way to work, pocket that money and save it for this fund.
Is it Better to Pay Off Debt or Get an Emergency Fund?
Whether or not it is better to pay off debt or get an emergency fund all depends on you and what your situation is. There are definitely pros and cons to each option. Though the two options are not mutually exclusive, it may only be possible for you to focus on one option if you are constrained with a lower income. In order to determine which option is better for you, you should weigh all of your options. Do you want to get out of your debt quicker and do not have to think about it anymore? Or do you want to have some money on the side in case something unexpected happens? Maybe you can even do both if you learn how to budget on low income efficiently.
Getting a Loan to Get Out of Debt
If you decide that you want to pay off your debt, but your income is low, you may consider a loan. Yes, loan is another type of debt, but there are some benefits of getting a loan to get out of debt, compared to struggling to pay it off. You could get one of a consumer loan — such as a personal loan — in order to decrease your debt and increase your credit. This may surprise you, since you typically acquire debt by getting a loan, such as a student loan, but getting a loan can improve your credit. It is even possible to get a loan with bad credit, though a loan based on income will determine how good — or bad — your interest rate will be. Getting a loan can be done in 3 simple steps, so it is easy to see your options.
It can be difficult to budget on low income, but there are many resources available to help get you started. Whether your goal for making a budget on low income is to decrease your overall debt or to save up for your future, it is possible to budget on any income, even to budget on low income. No matter what your financial situation is, you have options. Now it is just time for you to take control of your life and financial situation.
Grace Douglas is a master candidate in international security management by day and a personal finance writer by night! With powers in finance, writing, and languages that she received by being exposed to high dosages of university courses and being bitten by booklice while working in a rare books library, Grace loves to use her powers for good rather than evil. If you need help with budgets or personal loan questions, then just call Grace, your friendly neighborhood FinanceWoman!