Below I will show you how to budget money on low income
If you don’t believe me, I will prove that it is possible for so many reasons
First of all, most of the families don’t really know where their incomes go
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They don’t know how to budget their income
Also what causes deficit in their day to day expenses
For example, do you know you mortgage/rent percentage to your household income?
You will be surprised to discover you pay 50% or more of your income in your mortgage/rent and you don’t even notice that
That’s why according to CNN one third of Americans didn’t their rent in April, 2020
I know it is because of COVID-19, it also indicates a fact they don’t have any reserves
Convinced now, if so let me list the top 10 tips on how to budget money on low income
Start using a budget and stick to it
You have no way to balance your life on low income without sticking to a budget with your family
A budget can tell you the percentage of how much you spend according to your income
Also it can help you to focus on keeping your expenses to stay the same
Keep your housing costs minimum
This is the core, the meat and butter and mother of controlling any household budget
If you control your housing costs you are 9 out of 10 on the right track on how to budget your money on low income
In 2010 and 2011, me and my wife were getting paid 52% of our current income
We were really living very good, many months we doubled our mortgage payments and still have a lot of room to breath
Right now our household income got doubled but life is not like before
Very simple, we were living in 170 K Condo and moved to 480 K townhouse
Back in 2012, it was my first time to know that banks have a mortgage lending criteria that housing costs should be around 40% threshold of your income
I asked the financial adviser why it is like that
I remember he told me if you reach the 40% threshold you will be living paycheck to paycheck
Although all banks would agree to lend you with 40% threshold but learn from this lesson
Housing costs eat up your income so if you are single, I would say there is nothing wrong if you live with your parents
You can contribute by paying them a reasonable amount for using your room
If you are married or living with significant other, check how much you pay for mortgage/rent and downsize if it is beyond or near 40% of your total income
Build an emergency fund
Yes, building an emergency fund is added here in the list for a reason
This is not a typo or mistake, I will tell you why
Usually if you are living on low income, I assume you are barely making ends meet
What if you encounter urgent bill you cannot afford to cover with your low income
For example, all of the sudden you start your car in the morning heading to work
You find your battery is dead, you have to call a towing company if not a member of AAA or CAA
Surprise, you have a new bill for car battery to replace
If you set aside an emergency fund, you will protect yourself from falling into debt
Eliminate your debts completely
Right after having a minimum of $1,000 saved in your emergency fund
You start the snow ball process of working towards paying off all your debts
Best approach as per Dave Ramsey’s book Total Money Makeover is by tackling your debts based on using the debt snowball method
You have to list all of your debts starting from the smallest payoff balance to largest
Ignore the home loan and list all debts the way mentioned above even if you have a money taken from friends with no interest
It doesn’t matter here if it is zero or 24% interests and pay the smallest debts first
The only exception to this rule is a money you owe to the IRS in US or CRA in Canada
The reason I asked you to work on paying off the smallest first because you need to feel the small wins that boots your energy towards the largest ones
Get rid of non essential expenses
Original title was get rid of entertainment expenses
Then i realized there are so many expenses that are not an entertainment but you still need to cut them completely
Like GYM membership or the expenses of owning a pet
Perhaps speaking about owning pet is considered crossing the lines
Anyway I will list some expenses for you to cut as many as you can
- Dinning out and going to restaurants
- Going to theaters
- Culture events you pay for
- Attractions
- Performance arts
- Playing in Casinos
- Buying tickets for sports
- GYM membership
- Owing a pet
- Paying for cable – replace it with IPTV
Cut back on discretionary spends
I always refer to my personal coffee addict story
After realizing I cannot stay one single day without ordering my Starbucks morning coffee
I analyzed my monthly take away coffee orders and I decided to keep it to once or twice a week
Bottom line, you have to fight temptations and look for your needs over your wants
Use cash envelope method
Living on low income puts you in a situation where sometimes you have no choice but to use a cash envelope method
If you don’t know what is cash envelope method
It is simply you work with cash only where you don’t carry credit cards at all
You leave your credit cards at home
There are few people who cut their credit cards and carry the cash envelopes whenever they go shopping
If you assign let’s say $550 for grocery then you pay for your grocery from the grocery envelope
You manage to distribute the amount of groceries throughout the month
Once you are done with your envelope you cut your spending on this expense
Build zero-sum family budget
If you are not aware of what does zero-sum budget type means, simply you employ every dollar you earn from your income and give it a job to do
By doing that you prevent waste, maximize your income and help you to save money
Again, if you still don’t know how to build your personal budget
This is the best time to click the link above and leave it for me to put you in the budget mode

Increase your income with side hustle
You know I am discussing here different ways on how to budget your money on low income
But what I really don’t understand, if you are on low income why don’t you take an action and change your situation
You have no excuse if you think you have no skills or talent to use
Let me tell you that you have tons of things to do
I encourage you to read my post how to make 200 dollars a day
Automate your savings
Definitely you wonder what savings automation has to do with how to budget your money on low income
Simply, if you don’t deduct even little amount of your income when getting paid, then how do you expect yourself to save money
Saving on low income will never happen for you if you pay all of your expenses first
It works the other way around by deducting little amount
If you still have money left after paying your expenses then add more to your savings
Say No for lease or rent to own products
I have to admit I made a mistake buying a new car where I incurred paying around $530 with interest for 5 years
It completely exhausted me and my wife financially, I wouldn’t do it again
If you plan to buy anything for your home, I urge you to stay away from rent to own products
Exception if you have an offer to pay for a product for 6, 12 or 18 months with no interest, make sure you confirm that there are no hidden fees
Regarding lease for driving a vehicle, I don’t get it why you pay for using a car
Then after 2 – 3 years you ask to own it they change you inflated price compared to the exact same used car in the market which forces you to start a new lease with different car and the cycle goes on and on
Take advantage of tax credit
The only advantage for low income families is the fact that they fall in a low tax bracket that they qualify for a tax credit called EITC which stands for Earned Income Tax Credit in US equivalent for WITB Working Income Tax Benefit in Canada
Question is what you can do with this lump sum of government tax credit money
First, start by building an emergency fund if you don’t have one already
Start with the $1,000 emergency fund baby step then
If you are still in debts you will have to pay off all of your debts first
It doesn’t make sense to deposit the tax credit money into retirement saving account while you still have money owed to debtors
This money is not for luxurious spending or booking a travel package
Final notes on how to budget money on low income
If you are reading this post and you see yourself in a low income bracket
Start building your budget right now, don’t wait for another later
Saving for an emergency fund is not optimal, it is mandatory to face the all of the sudden incidents that happen in your life
Working to pay off all of your debts will get you out of the rat race
In your low income scenario, it may be useful to try the 52 weeks money saving challenge
Right now download free printable family budget PDF

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