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Trying to budget on a low income can feel like a challenge.

You might be living paycheck to paycheck, you could be behind on your bills, and you might end up maxed out on your credit cards. 

I can tell you this used to describe my life, especially when I had just graduated college and was working entry-level jobs (most of the time, earning minimum wage or close to it).

The good news is that a budget can help you reach your goals, even with a low income. 

Having a plan for your money is a great way to stress less (and start focusing on other things in life!).

Here are six steps you can take to stop living paycheck to paycheck (and save more money) on a low income:

1. Make a zero-based budget

When you make a plan for each dollar you make, you are following a zero-based budget. With zero-based budgeting, your income minus your expenses equals zero. 

This means you are including every expense you have in your budget, including room for miscellaneous spending (or spending you haven’t necessarily planned for). 

Having a zero-based budget is important when you have a low income for a few reasons:

-You can make sure you’re covering everything you need to, like bills, groceries, debt repayments and savings goals

-You’ll have a clear picture of where all of your money is going. This makes it easy to see where you could cut back on spending or if you should eliminate an expense entirely

For example, if you see that you’re spending over half of your income on rent- this might not be the best way to use 50% of your income. That’s a big chunk of your money going to one expense- which doesn’t leave a lot to cover everything else in your life. 

You might decide to downsize your apartment or get a roommate to make sure you have enough room in your budget for everything. 

How to take action:

Making a zero-based budget is easy! Like I mentioned before, you only need to make sure your income minus your expenses is zero. 

1.Pick a budgeting method that works for you, whether that is writing it down on paper or making a digital budget with a spreadsheet.

If you’re new to budgeting, you can use a budget spreadsheet to automatically calculate what you’re spending in each area of your budget. 

Our budget spreadsheets all include expense trackers that do this for you. Simply enter what you spent at the end of each day (it only takes 5 minutes!), and you can easily see how much you have left to spend in each category (like groceries, dining out, utilities, shopping, etc.)

It’s a much easier way to track your spending (compared to adding it up with a calculator for each category), so it’s also an easier habit to stick to. 

You’ll find our ready-to-go budget printables and spreadsheets here. 

2. Decide how often you want to budget, either by month or by paycheck. 

You can make a budget for the entire month in advance, or you can budget for each paycheck when you get paid. 

If you go with a monthly budget, you only need to put a budget together once a month. However, it can be harder to predict your spending for an entire month in advance. 

If you decide to budget by paycheck, you will be making a budget more often- but it’s a little easier to predict what you need to buy for the next week or two (depending on how often you get paid).

3. Include 5 basic budgeting categories each time

There are 5 budget categories that you should include in your budget:

• Your income, ie. your paycheck, a tax return, a bonus at work

• Your monthly bills, ie. rent/mortgage payment, phone bill, internet bill, insurance payments, minimum required payments on credit cards or student loans.

Tips to never be late on a bill again:

–List your bill due dates in your budget

–Automate your bill payments, so they are withdrawn from your bank account automatically when they are due

–Use a monthly calendar to record your bill due dates and paydays (this makes it easy to see what bills you need to cover with each paycheck)

• Your variable expenses/spending, ie. groceries, dining out, fuel, utilities, shopping, gifts, home expenses, personal care, etc.

• Contributions to your savings, ie. saving money for a rainy day (your emergency fund), saving up for a big purchase (your sinking funds), etc.

• Extra debt repayments, ie. making extra payments on your debt, above and beyond the minimum payments, so you can pay them off faster

Our Zero-Based Budgeting Templates:

Budget by Paycheck template

Ultimate Budget by Paycheck template (includes a budget template, expense tracker, monthly calendar for your bills, sinking funds tracker, and a debt snowball calculator to find out when you’ll be debt-free)

Monthly Budget template

Ultimate Monthly Budget template (includes a budget template, expense tracker, monthly calendar for your bills, sinking funds tracker, and a debt snowball calculator to find out when you’ll be debt-free)

Budget by Paycheck printable template

Monthly Budget printable template

4. Know your budget percentages 

When you’re working with a limited income, it’s extra important to know what percentage of your money is going where. 

Although it’s impossible to say how exactly much you should spend in each budget category (everyone’s situation is unique), there are some rough guidelines you can keep in mind:

Housing 25%

Utilities 5-10%

Transportation 10%

Food 10-15%

Insurance 10%

Entertainment 5-10%

Personal Care 5-10%

Health/Medical 5-10%

Shopping 5-10%

Miscellaneous 5-10%

Savings 10-15%

Other categories, like debt, child care, or tuition, can be added in depending on if these expenses apply to you. 

Check out our free guide to budget categories and budget percentages here.

2. Prioritize your essential monthly bills

Monthly bills are your fixed, recurring expenses that you know you need to pay each month. 

Some of your monthly bills are absolutely essential, like housing and utility bills- these are the ones that you need to live. 

If you don’t pay these bills, there could be serious consequences. 

It’s important to ensure these bills are covered (and are paid on time) before worrying about your other bills.

Examples of your non-essential monthly bills are things like gym memberships, music or movie subscriptions, or online membership fees. 

These are bills that you can cancel if you need to cover the bigger priorities in your budget. 

How to take action: 

Pay your essential monthly bills first, before any non-essential ones. 

Once you make your budget, go through your list of recurring bills and see if there are any you can cancel. This could be because it’s a subscription you’re not using, or one that you don’t use enough to justify the price. 

There are other bills that you can’t cancel, but that can be reduced by negotiating a lower price or switching to a cheaper plan. 

Examples of this are your phone and internet bills. 

The reason it’s important to review your monthly bill costs is because these are predictable expenses that are coming out every time you get paid. If you can reduce them, you can save money continually each month! 

Tools + resources to help you save money on your monthly bills:

Trim is a powerful tool that helps you to cancel old subscriptions, negotiate lower prices on your bills, and save money on your monthly spending. It even analyzes your spending patterns for you so you can see where you can save money every month!

3. Start to track your spending 

Your variable expenses are the costs you have that tend to change each month- think of them as your spending costs. Examples of things you spend money on are groceries, shopping, and transportation. 

The two biggest variable expenses for most people are groceries and transportation (housing is usually the biggest expense of all, but that is a monthly bill). 

If you’re not sure how to track your spending or if you feel overwhelmed by tracking it all, focus on your grocery and transportation spending. This is likely where most of your money is being spent. 

How to take action: Use your last 30 days of bank account and credit card statements to see how much you are spending. 

Take a closer look and see what your top 3-5 spending categories are.

By focusing on spending less in these areas, you can save money quickly!

That being said, don’t ignore the smaller expenses that might just be mindless spending or spending that is completely unnecessary- cutting out this kind of spending will also have an impact.

Tools + resources to help you save money on your variable expenses:

5 Dollar Meal Plan – a meal planning service that sends you a month’s worth of cheap recipes and grocery lists for $5 a month. Since each recipe is designed to be frugal and inexpensive, you can easily stick to your food budget without resorting to bland, boring meals!

Meal Planning Printables – a bundle of six meal prep printables you can print off at home

Drop – a rewards program that links to your debit or credit card- you’ll earn points every time you shop at your favourite retailers, which can be turned into gift cards. You can earn extra points by taking surveys and playing games, too.

Swagbucks – Swagbucks is one of my favourite ways to earn free gift cards online! (it takes less than a minute to sign up) and start to earn rewards for things you’re already doing, like surfing the web and shopping online. You’ll even be rewarded for answering surveys & watching videos! Your rewards can be redeemed for gift cards at popular retailers you’re probably already shopping at, like Amazon, Walmart, and Starbucks.

4. Save an emergency fund

An emergency fund is essentially your rainy day fund- it’s savings for unexpected expenses, like losing your job or your car needing major repairs. 

It is recommended to have 3-6 months’ worth of necessary living expenses (think rent and food, not entertainment and shopping) saved here.

When you feel like money is tight, saving for an emergency fund might be the last thing on your mind. But having one in place, even if it’s small- can alleviate a lot of money stress.

Many of us are using our credit cards as emergency funds without realizing it. When something unexpected happens, we pay for it with our cards. 

This habit puts you further into debt, which also increases your minimum payments on your credit cards. Remember that we’re trying to reduce your monthly costs- not increase them!

Even if you can only cover part of an expense with your savings, you’re still racking up less debt than you might have otherwise.

P.S. if you do have debt you are working on paying off, you can save up a smaller amount for emergencies (ie. $1,000), just until you are debt-free. Once the debt is gone, you can save up more.

How to take action: Open a free, no-fee savings account with your bank (a basic savings account will work just fine- you’ll want to be able to access this money quickly if an emergency comes up). 

Add up your necessary monthly living expenses, and multiply this number by 3-6 to find out how much you need to save in your emergency fund. 

Pssst- we have an emergency fund calculator in our Free Budget Resource Library that you can use to figure this out! 

Include regular contributions to your emergency fund in your budget. Even if it’s only a small amount, this is still a really important goal to start working towards. 

5. Make a plan to pay off your debt

Having an emergency fund helps to keep you out of debt. 

Going into debt means more monthly payments on things like credit cards, lines of credit, student loans, etc.

Imagine if you didn’t have these monthly debt repayments– that could give you a lot more wiggle room in your budget. 

Plus, you’re being charged interest on this debt, which is more money down the drain.

It’s important to try to avoid racking up large amounts of debt, and it’s even better to pay it off!

How to take action:

Change your spending mindset– instead of putting things you can’t afford on a credit card, start a spending wish list. This is a list of all the things you want to buy and their prices- save up the money for each item, and buy it in cash when you can afford it. 

Make a plan to pay off your debt. Start by listing all of your debts, including the amounts owing and what the minimum monthly payments are. 

Focus on paying off one debt at a time- when you’re done paying one off, roll its monthly payment into the next debt until it is paid off. Repeat until debt free! 

There are two commonly used debt repayment methods:

The Debt Snowball Method (more on that here– this is the debt payoff method I used!): Pay your debts off in order from the smallest amount owing to the largest. This method is great for staying motivated because you can pay off the smallest debt the fastest- you’ll feel great once you’ve paid it all off, and you’ll want to keep going!

The Debt Avalanche Method: Pay off your debts in order from the highest interest rate to the lowest. This method could work for you if you are motivated to stop paying a ton of money in interest on your debt. It could also work if all of your debts have the same (or very similar) amounts owing.

While you’re paying off debt, it’s also a good practice to reduce mindless spending (so you’ll have as much money as possible to pay off your debt with).

Here a few ways you can save money during this time:

–Try not to buy brand-new items– instead, try to only buy used or second-hand items when you need to buy something. If you can’t find a second-hand version, shop around for the cheapest option online. 

–Only buy the necessities or things that you need. You can try a no-spend challenge for 7, 14, or 30 days to boost your savings- during this time period, you only buy the things that you need. 

–Start to buy groceries at bulk stores or discount stores like Walmart or dollar stores

–Plan the days in a week you can afford to eat out. For the other days, plan out your meals in advance and spend 1-2 days a week meal prepping for the days ahead.

6. Do an expense audit every 3-6 months

An expense audit is where you go through each of your bills and expenses one-by-one and see where you can save money. 

This could be by cancelling a subscription, trying to spend less on eating out, or by calling your cell phone provider and negotiating a cheaper phone bill. 

By planning to have regular expense audits during the year, you can make sure you’re always spending as little as possible. 

How to take action: Do an expense audit with your first budget, and then every 3-6 months after that. 

Your expenses and bills will change, and it’s important to make sure you’re not paying for something you don’t use, or overpaying for something you do need. 

Expense Audit Tools:

Printable Expense Audit tracker (included in our printable Budget Planner)

Digital Expense Audit tracker (included in our Bill Tracker spreadsheet)

Free Budgeting Resources: 

Free Budget Resource Library – our library of budgeting printables & spreadsheets is completely free to sign up for! We’re always adding new tools to the library to help you budget better (without spending a dime).

Credit Karma – is a completely free way to check your credit score online. I’ve been using Credit Karma for years and I love how they also give you detailed feedback on how you can improve your score.

Mint – a free budgeting app that lets you plan your budget and track all of your spending on your phone.