Saving money and creating a budget might sound like chores you don’t need when you’re living on a tight budget.
Even if you have a small income, learning how to budget and save money is key to keeping you in good financial health and opening doors for a better future.
Ways to Budget with a Small Income
For people with lower incomes, budgeting is very important. Mapping out where your money comes from and how you spend it will give you a lot of help in making the best choices for your finances.
The first step is to think about your money on a month-to-month basis. Start by tallying your total average income each month. If you have a job with a salary, that should be easy because you just divide the annual salary by 12.
If you have a job that pays different amounts each week, such as depending on your hours worked or how much you make in tips or commission, calculating your monthly income is a little trickier.
To get your average monthly income with these type of jobs, total your income from the past three months and divide it by three. That will give you a good estimate for what you can expect to make each month.
The next step to budget on a small income is to list your monthly expenses. Include one category of “necessary” expenses that you can’t live without. This will include your bills like credit cards, rent or mortgage payments, utilities and food. They are things you need.
The second category is “unnecessary” expenses. Everyone has these kind of expenses because they are what helps us enjoy life. They include things like entertainment or clothing purchases. (Of course we need clothes, but list clothes purchases you don’t really need as “unnecessary.”)
Subtract your total monthly expenses from your total monthly income. That gives you a sense of how much extra cash you have each month.
Making Decisions About Your Budget
So, with your information about your money in front of you, now you can start to take control over your budget so that it fits your small income.
You can’t do very much about your “necessary expenses.” But consider finding ways to scale back where you can, such as by:
- Finding ways to cut food costs like by buying in bulk
- Exploring more affordable housing options to lower your rent payments
Next, review your “unnecessary” expenses. This is where you should take a minute to think about what you want to continue spending money on, and what you still want to keep for your lifestyle.
Making a budget for unnecessary expenses is important because it will help you when you are making your spending decisions each day. You won’t have to think about each spending decision, because your budget will give you a set plan and provide an answer to what you should buy or not buy.
Finally, consider ways of increasing your income. You might want to take on an additional parttime job or start a side hustle like freelancing.
How to Save with a Small Income
Developing a plan to save money is very important, even if it seems like you need to use all the money you have coming in.
One reason is that saving money helps you prepare for a financial emergency. So, if you lose your job or income, you can still meet your monthly obligations. That way, you will stay in good financial health and you can better stay out of debt and keep up a good credit score.
Another reason to save money on a small income is to help you get into the habit of saving. If you’re waiting to make more money before you start saving, you are getting into a bad habit of spending what you have. In that case, when you do make more money, it will be more difficult to start saving.
Think of saving money like exercising. It might be hard to get started because you can find so many ways to spend the money that would make you happy. But, in the long-term, saving money is much better for your financial health.
If you have a small income, you don’t need to save a lot of money. Make a plan in your budget to set aside a small amount of money regularly, whether it’s $5 each week or $200 each month or any other amount.
Soon, saving money will feel natural to you. And you can watch your savings grow and enjoy more financial security.