If you are earning less than a thousand dollars each month, setting up a budget is a must. First, allocate money to essential bills, living costs such as rent, utilities, transportation and groceries. Then you can budget for any extra expenses including insurance, loans and credit cards. Whatever money is left can go toward a savings fund for emergencies.
Four expenses that you must pay each month are rent, utilities, transportation and groceries. Property managers will say that you can spend up to 40 percent of your monthly gross income (before taxes) on rent, but considering other expenses, rent should not be more than 30 percent of your net income. For a budget of less than $1,000, that would be $300 a month on rent. One way to reduce your rent is to share an apartment with a roommate or two, with each person responsible for an equal share of the monthly rent.
Another fixed expense each month will be utilities, such as electricity, water, gas, internet, cable and cell phone. However, while you do pay these each month, the amount can vary or change depending on certain factors. Electricity, water and gas payments depend on usage, and while more roommates may mean higher usage, the bills should also be split between each roommate evenly. Discuss energy usage with your roommates early on to decide how much they can spend. Cable and internet usage can be optional depending on your roommates’ needs, though access to the internet is usually a necessity. Cell phones are also becoming a necessity for most, but you can negotiate your bill or switch providers if you cannot afford your current plan. Altogether, utilities should not cost more than 10-to-20 percent of your net monthly income.
Transportation is another monthly bill you may be able to save money on depending on where you live. Many cities offer affordable public transportation. Even if your car payment is only 10 percent of your monthly net income, you also have to add gas, car insurance, registration and repairs into the potential monthly cost of having a car. Meanwhile, selling your car and paying for public transportation, bicycling or carpooling, can reduce your transportation costs from 30 percent to 5 percent.
Finally, groceries are a necessary expense but planning meals in advance each week will help you budget your grocery cost. Try to avoid going food shopping when you’re hungry or eating out when hunger strikes. Plan to set aside about 25 percent of your monthly net income for groceries.
Even if you were to sell your car and reduce your non-negotiable bills to 80 percent of your net monthly income, you may still have other bills to pay. Don’t forget to include other expenses into your monthly budget such as personal or student loans payments, insurance or credit card payments. If you are drowning in debt, it’s best to consolidate your balance to a lower interest rate. This will lower your minimum monthly payment, as well as paying more toward the principal with each payment. Credit cards are notorious for offering no interest for a time period, but after a while, they will go up to a very high, compounding interest rate.
If your job does not provide health insurance, and you cannot be added to a spouse’s or parent’s plan, then it will be an extra expense each month. However, it is better to pay for health insurance each month despite the extra cost since subsidized plans are often adjusted according to income.
Savings for Emergencies
Any money left at the end of each month should be put into a savings fund for emergencies, rather than spent on entertainment. It can be tempting to spend money from other areas of your budget on hobbies, shopping or eating out, but if you live beyond your means in little ways each month, your bills will only escalate, making it impossible to sustain your present lifestyle.
Utilize a Budgeting App
To stay on track with your $1,000 a month budget, it is essential that you keep track of every dime. There are a host of budgeting apps you can download to your tablet or phone to make the process easy. A few popular examples include Mint.com, YNAB and Expensify. Simply enter the expense as soon as you incur it and pay attention to your remaining balance so you don't overspend.
Heidi Nickerson graduated from Liberty University in 2013 with a Bachelor of Arts in English. She has previous work experience in Financial Aid as a Grants Processor, where she was responsible for reviewing students' FAFSA information against their tax documentation. Prior to that, she worked with an Enrolled Agent to help families and small businesses submit their annual Federal tax returns.