If you’re living on a tight budget, you know how impossible it feels to save. When every dollar is already spoken for, budgeting can seem like just another stressor. But here’s the truth: budgeting isn’t about having a lot of money. It’s about making the most of what you have.
Even with a limited income, a budget can help you feel more confident about your finances and start building toward your goals. It’s not about cutting out everything fun or living with constant restriction. It’s about having a plan that works for your life.
This guide will walk you through simple, practical steps to start budgeting – no fancy tools or complicated math required.
Why Budgeting Matters
Budgeting helps you understand where your money goes, so you’re not left wondering why your paycheck disappears so quickly. It also helps you prioritize the essentials, like rent, groceries, and transportation, while keeping an eye on the extras that can quickly add up.
Even if you’re only able to save a few dollars a month, small savings can grow over time and give you a cushion for unexpected expenses like car repairs or medical bills. Budgeting also helps you avoid relying on credit cards or loans, which can lead to long-term debt.
According to the National Foundation for Credit Counseling (NFCC), budgeting is one of the most effective ways to manage both fixed and variable expenses, identify impulse spending, and build good financial habits.
1. Know Your Income
Start by calculating your monthly take-home pay. This is the amount you receive after removing taxes. If your income varies (for example, if you work in retail or food service), use your lowest earning month as your baseline. This ensures you don’t overestimate your income.
Don’t forget to include all sources of income, including side gigs, freelance work, child support or alimony, and government benefits. Totaled up, this is the money you have to work with each month. Once you know how much money you’re working with each month, the next step is figuring out where it’s going.
2. List Your Expenses
Now it’s time to take a close look at where your money goes each month. Start by reviewing your bank statements, receipts, or budgeting app history to identify your regular expenses. Break these into two main categories: essential and non-essential.
Essential Expenses
Essential expenses are the costs you must cover to maintain your basic standard of living. These typically include:
- Rent or mortgage payments
- Utilities like electricity, water, and internet
- Insurance premiums (health, auto, renters)
- Loan payments (student loans, car loans)
- Transportation costs (gas, public transit)
- Groceries and household supplies
Non-Essential Expenses
Non-essential expenses are things you can reduce or eliminate if needed. These might include:
- Dining out or coffee shop visits
- Streaming services and subscriptions
- Shopping for clothes or electronics
- Entertainment like movies, concerts, or hobbies
The goal is to understand your spending habits so you can make informed decisions. Once you’ve listed everything, you’ll be ready to compare your expenses to your income and start shaping your budget.
This step might feel a little tedious, but understanding where your money goes can often reveal spending patterns you didn’t even realize were there.
3. Choose a Budgeting Method
Now that you know your income and expenses, it’s time to build your budget. Here are some of the most popular budgeting methods. You can also find free budgeting spreadsheets available online, such as the CFPB’s spending tracker.
50/30/20 Rule
This budget breaks down your spending into three categories: needs, wants, and savings. 50% of your budget will go toward needs (rent, groceries, utilities, insurance), 30% toward wants (dining out, hobbies, entertainment), and 20% toward savings or debt. The 50/30/20 rule is ideal for beginners or those who want a simple, flexible structure.
Zero-Based Budgeting
In this budget, every dollar of income is assigned a specific purpose until nothing is “left over.” Income - expenses = zero. This method is more detailed and customizable than 50/30/20, but it also may take more work to maintain the tracking it requires.
Percentage-Based Budgeting
With this budget, you assign percentages to categories based on your lifestyle. It’s similar to the 50/30/20 rule, but more customizable based on your lifestyle. For example, you might allocate 60% to needs, 10% to wants, and 30% to savings if you're focused on building an emergency fund.
After choosing a budgeting method that fits your lifestyle, it’s time to put it into action by tracking your spending. This helps you stay on course and adjust as needed.
4. Track Your Spending
The Consumer Financial Protection Bureau (CFPB) recommends tracking your actual spending for 30 days to get a clear picture of your financial habits. Use bank statements, receipts, and budgeting apps to track your spending.
If you’re new to tracking, start by writing down every expense for one week. You might be surprised by how much goes toward snacks, coffee, or impulse purchases.
When income is limited, it’s crucial to prioritize needs over wants. Focus on covering essentials first: housing, food, utilities, and transportation. If there’s money left over, use it to increase your savings.
5. Set Financial Goals
This step will be highly dependent on your priorities, but common goals include creating an emergency fund, paying off a credit card, or buying a home.
If your goal is to have a $250 emergency fund in 6 months, start small. Set up an automatic transfer of $15 from your checking account to a savings account every Friday. Even if you can only save $5 or $10 a week, it adds up.
6. Adjust and Review
Your budget isn’t set in stone. Part of the budgeting process is monitoring your spending weekly or monthly using spreadsheets, budgeting apps, or manual tracking. If you see something isn’t working, alter it. Life changes, and so should your budget. If you receive a raise, lose income, or face new expenses, update your plan accordingly.
For example, after a couple of months of tracking your spending, you notice that you’re consistently going over the $300 you’ve allotted for groceries, sometimes by $100 or more. Not only have food prices have gone up, but you’ve also been buying more fresh produce and specialty items.
Instead of continuing to overspend, you increase your grocery allowance to $400 and make up for it by cutting back in on your entertainment spending. If fresh produce and specialty items aren’t a priority, you might decide to start shopping at discount grocery stores or cut certain products from your grocery list. By making these changes, your budget will reflect your actual spending habits and priorities.
7. Seek Support When Needed
Budgeting is a skill, and like any skill, it takes time to master. If you’re struggling, don’t hesitate to seek help. Free or low-cost financial counseling is available through organizations like:
- National Foundation for Credit Counseling (NFCC): Offers personalized financial reviews and action plans.
- Consumer Financial Protection Bureau (CFPB): Provides tools and booklets to help you manage debt, build savings, and understand your rights.
- Local nonprofits and community centers: Many offer budgeting workshops and financial coaching.
Additionally, automate wherever possible. Set up automatic transfers to savings, bill payments, or debt repayment to eliminate the barriers to saving and reduce the chance of missing a payment.
If you find yourself struggling to make your budget work, you’re not alone. Budgeting takes practice, and there’s no shame in asking for help.
Progress, Not Perfection
Budgeting on a low income is all about taking steps in the right direction. Even small changes, like accurately tracking your spending or saving a few dollars a week, can lead to meaningful improvements over time. Your budget should reflect your life, and that means it will change as your circumstances change.
Be patient with yourself and don’t be afraid to ask for support when you need it. With consistency and a plan, you can achieve your financial goals. And if you need help, WithU Loans is with you every step of the way.