There are many ways to save money and resolve debt on a low income. Some people may think that they can’t manage their finances because they aren’t making enough money. This isn’t the case! There are plenty of strategies for how to budget money on a low income and how to make your dollars stretch further than ever before.
What is a Budget?
A budget is how you plan out your spending in order to ensure that you have enough money left over at the end of each month for savings, paying off debt, and putting money away for emergencies.
How to Make a Budget
There are many different ways that you can budget your money. If you are looking for how to make a budget on low income, look no further! The key to a successful budget is to make sure that you are bringing in more money than you are spending. This will help you have a surplus of money at the end of each month to save, pay off debt, and put away for emergencies. One easy way to get started is to find a budgeting app that you can download to your phone to help you stay on track.
What Is Considered Low Income?
The definition of low income is typically left up to the Department of Housing and Urban Development (HUD) which sets the state income limits. What this means is that your definition of low income can vary depending on what state you live in and how many people live in your household. At the national level, HUD defines a low-income individual as someone making $44,750 or less. Check out the state income limits for 2021.
Why Is It Important to Make a Budget?
Budgeting can help ensure that you have money for your bills each month and that you don’t end up in debt. If you regularly spend more money than you earn, then you will likely fall into debt. This can be especially true for people with low incomes because they may not have the ability to save money each month. It’s important that they stick to a budget to avoid falling further behind on their debts.
Seven Steps to Creating a Budget on a Low Income
Make a Plan and Stick to It
There are many different types of budgeting plans that you can take part in. The key to all these plans is commitment. If you’re able to stick to the plan for an extended period of time, then you’ll be able to steadily chip away at your debt and become debt-free. One strategy that can be effective is called the “envelope system,” which uses cash for each category in your budget. Once the cash for a specific category is used up then you are done spending in that area for the month. Learn more about the envelope system in this article.
Prioritize Your Housing
Every budget should start out by identifying what your housing expenses are going to be for a specific time period. This includes how much you’ll pay for rent or how big of a mortgage payment you will have each month. It also should include how many utilities (electric, water, etc.) you’re responsible for and when they are billed. A few ways to reduce spend in this area could look like moving to a less expensive apartment complex or cutting back on electricity usage.
Save What You Can
While saving may be the last thing on your mind at this point, it’s still an important thing to do. No matter how much money you make, saving is going to be a good way of pushing yourself forward and making sure that your future is secure. The amount of savings will vary from person to person, but a good rule of thumb for those on a budget is setting aside at least 10% or more to set your future self up for success. How much is a good amount to have in your savings account? Read more in this article.
Reduce What You Owe
Everyone has monthly bills. When you’re creating a budget, the more monthly commitments you have, the tougher it will be to build up any cushion. Reducing the amount that you owe can reduce stress and help free up your finances to help you spend on other more important areas.
Increase Your Income
Apart from spending less, you could create room in your budget by increasing your income. Whether it’s taking on a second job, applying for a promotion, or trying to earn extra cash through side hustles, increasing your income could help you to save more and reduce how much debt you owe. There are many online resources that can help you earn extra cash and streamline how to do it.
Comparison Shop Everything
There are certain things that you always need to buy. However, it’s important to shop around for the best deals. For example, buying a bag of apples from one store might be cheaper than another, but perhaps they’re selling them at a lower price because they are bruised and less appetizing looking. Shop around to make sure you get what you need without overpaying for it!
Create an Emergency Fund
Life tends to be unexpected. When an expense comes up out of the blue, how will you pay for it? It’s important to have an emergency fund that can cover these expenses. For example, if your car breaks down and you suddenly need $500 to fix it, how would you come up with the money? Sticking your credit card into that situation isn’t a good idea because if you can’t pay it off in full at the end of the month, then you’ll just be paying interest on that purchase later. We recommend setting a number that you always need to have in your account so that you can cover emergencies. For example, if you set $1,000 as your number then that would be how much money you would strive to have in the bank at any given time.
How Can CreditAssociates Help?
At CreditAssociates, we could help you resolve your debts for less than you owe AND put you on a plan with affordable monthly payments. Sound too good to be true? It’s actually a common form of debt relief called debt settlement. During this process we negotiate with your creditors to settle your debt for a lower amount than what you owe. This could help you to pay your debt off faster and reduce how much you owe every month. We recommend reaching out to one of our certified debt consultants today for a FREE consultation on how you could become debt-free in as little as 24 months.
Commons Questions About Budgeting:
What is the 50-20-30 budget rule?
The 50-20-30 budget rule is a technique for budgeting where you set aside 50% of your paycheck for essential items, you save 20%, and then have 30% to use for any other categories (typically non-essential items).
How much should I save each month?
While the answer to this can depend a lot on your lifestyle, where you live, and what your future goals are, it’s a good rule of thumb to save at least 20% of your income. How much should you have in savings?
How much should I spend on living expenses?
There is a lot of flexibility with how much you spend on living expenses, but the rule of thumb is to set aside no more than 50% of your income for those. If you are spending more on your living expenses than this, we recommend taking a hard look at how you can reduce your costs. Need help tracking your expenses? Read more on budgeting apps in this article.
How much savings should I have at 30?
The amount that you should save is something that will be unique to you, but 30 is a good time to start making sure you are building up your savings. A general rule of thumb is that by 30 you should have saved around one year’s worth of income. This will allow you to have a cushion in case of an emergency, but also to start saving for retirement.
It can feel hard to build up your savings while trying to tackle large amounts of debt. If you need to reduce your debt for less than what’s owed, debt settlement might be a good option for you. Debt settlement could help you become debt-free for a fraction of what you owe, putting more money in your pocket for savings. See more on “how it works” here.