How To Budget Money On Low Income (10 Simple Steps)

Last Updated June 29, 2024 by Davina Kelly

Learning how to budget money on low income can be challenging. It can feel like you can’t seem to make ends meet or make progress towards your financial goals.

As someone who is budget-conscious, I will share my best tips on how to budget for beginners and save money.

No matter how much money you make there are things you can do to take control of your finances.

You are going to learn how to budget money on low income including ways you can reduce your expenses and increase your income.

After learning these tips you will know how to manage your money and create a budget that works for you.

This post is all about how to budget money on low income.

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How To Budget Money On Low Income: 10 Best Tips

1. Figure Out Your Income

When you are trying to budget money with a low income, the first step is to determine how much money you have coming in. Your income is the foundation of your budget, it will dictate how much money you have to allocate to each area of your budget.

To get started, you need to make a list of all of your income sources. This includes your salary, side hustles, interest, benefits, etc. Any income source you have, make a note of it and the expected amounts.

If any of your income sources are irregular or the amounts vary, you can include an average amount. For example, if you have been paid $250, $500, and $650 over the past three months from your side hustles, you can include $450 as your average expected income.

You can write this down on a notepad or you can use an Excel spreadsheet or Google Sheets. Make a note of the date you expect to receive each income source as well, this will be helpful for the next step.

2. List Your Expenses

Now that you know how much money you have coming in, it is time to list your expenses. Knowing your monthly expenditure and understanding your spending habits is crucial when you are budgeting money on low income.

Most people usually underestimate the amount of money they spend each month. You want to be as accurate as possible to get the most out of your budget.

Log into your bank account online and review your statements to see your monthly outgoings. I recommend reviewing the last 3 – 6 months to get a good picture of your spending.

When you are listing your expenses you want to separate them into categories. I know it may seem like a lot, but we are going to keep it simple. To make it easy you are going to separate your expenses into three categories. Essential expenses, finance goals and non-essential expenses.

Essential Expenses

Your essential expenses are any costs that relate to your needs. For example, expenses such as rent, mortgage, utilities, groceries, transport, childcare, phone bills, etc. Any costs that are necessary for survival are included in your essential expenses.

Finance Goals

Having goals for your finances is super important. I recommend that you include them as part of your expenses, this way each month you are actively putting money towards them.

Your finance goals should fit into one of the following categories. Savings goals, investing goals or debt pay-off goals. If you have more than one goal that is fine, just write down how much you want to contribute to each goal.

Non-essential Expenses

Non-essential expenses are the expenses that you pay for each month, but you can live without. These can include expenses such as subscriptions, memberships, beauty maintenance, eating out etc.

Being on low income doesn’t mean that you have to completely stop spending money. You work hard and should enjoy the fruits of your labour.

I actually recommend that you include a personal allowance in your budget to spend on things you enjoy. This way you won’t feel restricted and want to scrap your budget.

When writing down these expenses don’t stress if you can’t budget the exact amount. Some of your expenses will vary from month to month, so you can use your best estimate in those instances.

You can put your budget together and list your expenses using the free printable budget and expense tracker I have included below.

3. Check Your Net Balance

Once you know your income and expenses you need to look at your remaining balance. To do this you need to subtract your total monthly expenses from your monthly income this will tell you how much money you have left over.

If your balance is negative that means you are spending too much money. Don’t worry if this happens, including this step will allow you to see what is or isn’t working and make changes. To make your budget work you will need to look through your expenses and see where you can cut back.

However, if your balance is positive you want to decide how you will use this extra money. Do you want to build an emergency fund? Pay off debt? Start investing? Once you have decided you can include it in your budget.

4. Choose a Budget Method

When you are budgeting your money you want to stick to it and the best way to do that is to choose a method that works for you. Having a budget method will make the process easier because you will have a formula to follow.

The best budget methods when you are trying to budget on low income are the zero-based budget and the cash envelope budget. Both of these methods are simple and effective.

With these budget methods, you give every dollar or pound in your budget a job by allocating it to a category. This way you ensure that you consciously spend all of your money.

The difference between the two methods is that with the cash envelope system, you are using cash. The formula is the same, all of your income is planned. But with the cash envelope method, you will withdraw cash and put the amount for each category into an assigned envelope.

The idea is that once the cash is finished you are forced to stop spending. This budget method is really helpful for people who lack control and often overspend. It can help you gain some control over your spending and encourage you to start spending mindfully.

Think about the option that works best for you, the most important thing is that you choose a method that you will stick to.

5. Automate What You Can

A good way to simplify the budget process is to automate any expenses that you can. This will help you to pay your bills on time and save before you start spending.

If it is possible set up standing orders or direct debits for things like rent, bills, savings, subscriptions, etc. I recommend setting up these expenses to leave your account on payday.

If you have multiple income sources you can set them up to leave your account on the day you receive your biggest paycheck. For example, if you are paid a salary you can set them in line with that payday.

6. Review Your Progress

Now that you have done all of the hard work of creating your budget it is important to make sure that it is working. Reviewing your progress is a key part of maintaining your budget.

Each month make some time to sit down and update your budget. Check your bank statement for the previous month and update your budget with your actual numbers. Once you have done this you need to reflect on the results.

You want to think about how much you have spent, how you feel about it and also think about any improvements you want to make for next month.

For example, if you spent more money than you planned on eating out you may want to ensure that you plan your meals the next month to avoid the same thing happening again.

7. Adjust When Necessary

The best budget is one that is agile. Over time things will change so it is important to allow room for flexibility in your budget.

If there are any changes to your income or expenses you want to make sure that you include them in your budget. For example, if your rent increases don’t feel defeated and give up on your budget.

Instead, review your expenses and see where you can make some adjustments. For example, you could look at reducing your non-essential expenses.

8. Cut Back Where You Can

When it comes to budgeting your money it comes down to simple maths. Income minus expenses. If you are on low income the best way to make room in your budget is to reduce your expenses.

Let’s say that you have done your budget for the month and you can see that you don’t have enough money to cover your expenses. First, don’t panic! I know it can feel scary and overwhelming to see a negative balance, but you can make some adjustments to change that. You will have to make some sacrifices in the short term, but it will pay off over time.

Let’s look at some ways you can cut back on your expenses.

Reducing Your Expenses

When you are trying to reduce your expenses I recommend looking at the areas that make up the biggest part of your budget. Housing, food and transportation are the biggest expenses so you can start there.

Think about your food costs, are there ways to reduce the amount of money you spend on your groceries? If you eat out a lot you can cut back on doing this and cook at home more to save money.

If you spend a lot of money on commuting or petrol look at ways to cut back. Can you carpool? Or can you negotiate to work from home more to save money on public transport costs?

Next, you want to look at cutting back on non-essential expenses. If there are any subscriptions you have, ask yourself do you really need them.

Can you cancel Hulu and just use Netflix? If you have a gym membership can you cancel it and work out from home?

Also, consider calling up your service providers and negotiating a cheaper price. If you are a loyal customer and explain that you want to keep the service but can’t afford it they will usually offer you a discount.

I am not the best negotiator but I have managed to do this with my Internet service provider and get a discount. If I can anyone can lol

9. Sell Any Unwanted Items

Decluttering your home is a good way to clear your space and it can present opportunities to make money. If you have any unwanted clothes, shoes or electronics that are in good condition why not sell them and make some extra cash?

You can list your items on eBay, Vinted or Facebook marketplace and sell them. Getting started is pretty easy, all you need to do is take some good photos of your item, create a catchy title and good description, set your price and create your listing.

Related: Selling Clothes On eBay

10. Increase Your Income

If you have cut back on expenses as much as you can and are still struggling it may be time to look at ways to increase your income. There are many ways you can do this, see some examples below.

Ask For a Raise

First of all, if you work a full-time job you should be getting a raise every year. You work hard so you should be compensated fairly. Inflation increases every year so your income should increase too.

When asking for a raise you need to ensure that you can justify why you think that deserve a raise. If there are any additional projects you have worked on, make a note of them and highlight the outcome you were able to achieve. Or if you have any emails from people thanking you for going above and beyond use that as evidence to support your case.

Start a Side Hustle

There are many side hustles you can start to increase your income. From online tutoring to selling digital products and delivery jobs there is something you can do on the side to make money.

Think about what you are naturally good at or enjoy doing and offer it as a service. For example, if you are good at doing hair or marketing you can offer this as a service on the side and make money.

Make Money Online

There are many ways to make money online. You can make an extra $500 from the comfort of your own home by doing things like transcribing audio, testing websites and being a virtual assistant.

Other Things To Focus On

Build an Emergency Fund

Regardless of your financial situation, it is important to have an emergency fund. An emergency fund is like having a safety net to fall back on in case of any emergency expenses.

For example, if you have unplanned car or household repairs you can use your emergency fund to cover those expenses and avoid going into debt.

Avoid Debt

It is easy to get into debt when you are on a low income, but if you can avoid it at all costs. Getting into debt will only make things worse. You will have to cut back your expenses even more and it can cause stress. If you stick to your budget and build an emergency fund you won’t have to rely on debt.

On the other hand, if you already have debt I recommend paying it off as soon as possible. You can include the monthly repayments in your budget. By paying off your debt you will free up more money in your budget and save money in the long run.

Focus On Your Mindset

Learning how to budget money on low income can be stressful and it can lead to a negative relationship with money. It can lead to you having a scarcity mindset and feeling like things will never change. Trust me I know, I’ve been there.

By following the steps in this post you will start to build good money habits and over time you will improve your relationship with money. Remember that this situation is temporary and over time it will get better.

When you are focusing on your mindset I recommend educating yourself about money. You can do this by reading books, listening to podcasts or watching interviews or documentaries.

This will help you to learn about how money works and when you start making more money you will know exactly what to do with it. I will list some of my favourite resources below.

Books

Rich Dad Poor Dad
The Psychology Of Money

Podcasts

Earn Your Leisure

Shows

Your Rich Life (Netflix)

YouTube

Nischa
Jennifer Kempson
Break Your Budget

Frequently Asked Questions

How To Be Frugal On a Low Income?

When you are on a low income being frugal will help you save money. Being frugal isn’t about being cheap. It is about making smart choices and getting the most value for your money.

Adopting a frugal lifestyle can help you become mindful when you are spending money and simplify your life.

Here are some ways to be frugal on a low income.

Reduce your grocery bill
Cancel unwanted subscriptions
Shop during sales
Resell unwanted items
Plan ahead
Pay off high-interest debt

How Do I Make a Low Income Budget

To make a low-income budget you need to determine how much money you have coming in and make a list of all of the expenses you have. You want to ensure that you are prioritising your bills and essential expenses and cutting back on any non-essential expenses.

Once you have all of this information you need to subtract your expenses from your income. If you are left with a negative balance you need to find areas in your budget where you can cut back. I have included more details on how to budget money on low-income in this post.

Here are the highlights for how to make a low-income budget.

Figure out your income
List your expenses
Check your net balance
Choose a budget method
Review your progress
Automate what you can
Adjust where necessary

Final Thoughts

Creating a budget on a low income can be difficult, but it is not impossible. Finding balance is key and will help you stick to your budget. You want to prioritise your bills and essential expenses but also allow room for you to spend money on the things you enjoy. This will help you to create a realistic budget that you enjoy and will stick to.

Having a plan for your money will give you peace of mind because you will know that you are spending your money intentionally and working towards reaching your financial goals.

I hope you have found this post helpful and can now create a budget for yourself. What are some of the tips you have for budgeting your money on low income?