How to Budget for a Low Income Individual

Analyzing your current financial situation helps you budget for the future.

Analyzing your current financial situation helps you budget for the future.

In times of economic crisis, you might lose your job through no fault of your own due to downsizing. You may find it impossible to find full-time employment at the salary you've become accustomed to. Perhaps an unexpected medical condition has changed your financial picture. Whatever the reason, living on a low income creates many challenges. Closely examining your current income and expenses will help you assess your financial situation. Once you've clarified what you're working with, you can create a budget and find cost-saving measures to help you get back on your feet.

Know Where Your Money Goes

Monitor what you are currently spending. List all your monthly bills for fixed expenses, such as your rent or mortgage, repayment of bank loans, and insurance payments. Calculate the monthly portion of other bills. For example, if your car insurance is $2,400 per year, divide by 12 and record $200 as a monthly expense, even if you make the total payment once a year. Examine recent bank statements to determine how much cash you've been withdrawing on average and use receipts to track where you spent the cash. List every cab ride, bus pass, restaurant bill, grocery purchase and everything else you can remember buying. You may find several purchases you didn't need to make and can avoid in the future.

Compare the Incoming and Outgoing

Once you've listed your monthly expenses, total them and compare them to your income. If you've got the bills covered but barely, it's time to look at cutting some of your expenses. If you come up short, recognize you need to find ways to reduce spending or find an additional part-time job. Consider yourself solvent only when you can meet your bills and set aside a bit of money each week for unexpected emergencies. Unexpected illnesses, car repairs and rent increases are as certain as death and taxes, so it's best to prepare for them as much as possible.

Wean Your Wants

Many of the items you use every day seem like needs but are really wants. You can, for instance, live without your cell phone. Even if you don't get rid of it completely, consider changing your plan. Do you really need internet access on your phone? Consider getting rid of your landline, too. If you're like most people, you probably don't use it. If you make lots of long distance calls regularly, switching to a VOIP line, which usually costs under twenty dollars a month, can be a big savings. There are lots of ways to reduce your expenses, and your phone is just the beginning.

Reduce the amount of money you spend on gifts. Stock up on generic but nice wedding and birthday gifts when you see them on sale. If money is really tight, create a coupon to give the gift of your time to family members who might appreciate your services as a babysitter or lawn mower more than an expensive bottle of wine. Give up drinking bottled water and switch to tap water. If your water isn't great, invest in a reusable water bottle with a built-in filter. Consider replacing your gym membership with home workout videos. If you need others for motivation, find an exercise buddy who will walk through the neighborhood with you regularly or who will come over and work out with you to an exercise video.

You can also save by finding new ways to entertain yourself. Rather than paying admission at a movie theater or theme park, look for creative ways to have fun with friends. Organize a pot-luck dinner or host a game night instead. If you own a video game system, buy used games and choose ones with a high replay value so you can enjoy them more than once.

Spend Less on Needs

For most people, increasing their income means getting another job. Flipping burgers isn't glamorous, but it's a job. Reducing your expenses, however, is a bit more complicated. No matter how tightly you cinch your belt, these expenses aren't going anywhere. There may be ways to reduce them. If your rent is high, consider moving into a smaller unit. If you can, consider the benefits of taking on a roommate or bunking with your parents for awhile until you get back on your feet. To reduce your gas or electric bill, keep the house a few degrees cooler in winter and warmer in the summer, using less heating or air conditioning. Run appliances like the dishwasher and washing machine only when they are full. You can even cut corners by switching to a bank that offers free checking and fewer fees.

You'll always need clothing, but you can save a significant amount when you buy it second hand. Many stores sell good quality items at a fraction of the price for new. Check out garage sales before heading out to buy something that you need. Like clothing, food is necessary. You may, however, spend more on it than you need to - or realize. Stop eating at restaurants, brown bag your lunch and make coffee at home in the morning. Skipping the barista can save you up to $40 a month. Clip coupons before you head to the grocery store, as well, and buy only the food you need. Everyone likes cookies, but no one needs them. Every little bit you save adds up.

Items you will need

  • Copies of all bills
  • Credit card statements
  • Bank statements, for last three to six months
  • Income statements
 

About the Author

Freddie Silver started writing newsletters for the Toronto District School Board in 1997. Her areas of expertise include staff management and professional development. She holds a master's degree in psychology from the University of Toronto and is currently pursuing her PhD at the Ontario Institute for Studies in Education, focusing on emotions and professional relationships.

Photo Credits

  • Jupiterimages/BananaStock/Getty Images