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How do you budget when you’ve got NO money?
If you are trying to make ends meet and are sick of living pay cheque to pay cheque then understanding “How to budget money on a low income” is going to be invaluable to you. In fact, budgeting is one of the best ways to start improving your finances, which is why you need to start TODAY!
Where to find those cuts that will free up money.
Housing:
One of the biggest drains on everyone’s income these days is the cost of housing. I was no exception. When we started this journey we were living in a 2500 sq ft house in an affluent area, walking distance from the private school that my kids attended. When fate came along and kicked us in the “proverbials”, we had to make a hard decision. We had equity in the house, we had the entire basement empty and underutilized (so effectively living on 1200 sq ft of space and using the double garage as a storage unit for junk) and we couldn’t afford the mortgage payments on one income.
The plan became: downsize, pay off some debt, find a mortgage that we can afford when only one of us is working. Sounds easy right? This is where you find out it’s a sellers market and you become ecstatic with the amount of people who want to purchase you home, as is, unseen. We literally had an offer in three days of listing.
Then we became buyers. Competition was fierce for anything even remotely decent, so we resigned ourselves with finding a one-year rental so we could save a little more. My tale does have a happy ending – before we could look for a rental our offer was accepted on a sweet 1450 sq ft home in a gorgeous and secluded area just North of town. We managed to shave $125,000 off the mortgage and there was room to breathe.
When you’re House Poor!
Ideally housing costs should take up no more than 25% of your income. This may be difficult to manage if you live in an area where affordable housing is an urban legend. There are good deals out there on rent if you are diligent – keep looking, keep reaching out. Someone always knows someone who has a rental property, right?
If you are a renter consider taking a roomie. With an extra room available and IF you do need the extra money this is an excellent way to garner more income. What if you own your place and like us, have unused space – look at converting it to a rentable suite to make money. A renter paying half your mortgage just makes Perfect Cents! How is that not a desirable situation?
List on Air BnB if you live in an area where people need short term accommodation.
Debt.
If you have a low income then having debt is a No No! The fastest way to get out of debt is to use a “Snowball or Avalanche” technique. Effectively you budget to pay off more of your most costly debt first – the one with the highest interest rates. Once that is accomplished you take the payments you were making on that debt and combine them with the smaller payments you were making on the next larger debt and so on. Now you have a rolling debt payoff plan – the avalanche effect. Snowballing sees you listing your debts from smallest to largest – make the monthly payments on each one each month but focus on clearing the smallest balance. After this is cleared, roll those payments into paying off the next balance; and so on, and so forth.
For more insights on becoming debt free you may want to take a look at my other post: What is the best way to get out of debt and stay out?
Utilities.
If you live in an area where you are able to shop around for the best deals from the Utilities companies then you should absolutely do that. In the UK (where I’m from), if you used electricity you could choose Manweb or Norweb or a host of other providers – Same goes for natural gas. Here where I live (British Columbia), it is a closed shop. If you want electricity it is supplied by BC Hydro – no other option. Natural Gas is supplied by Fortis BC. Need to insure the car – that would be ICBC – I know, that’s not a utility but I’m just saying. So in my situation, finding a cheaper provider is not an option but I can choose to use less. By practicing cost saving techniques within the home we cut our hydro bills by one third in one-year. On any given day you will be sure to hear me yell at least once “Turn that bloody light off!”
We also recently installed a clothes line on a pulley system that operates from the kitchen door – just off the laundry room. I can now peg out the washing without going outside and bring it back in very quickly if it rains. Do you have any idea how much energy your dryer uses?
Having an energy audit done is a great way to figure out where your money goes within the home and will also give you cost saving measures as part of the written report.
Here is a link to a site that will help you perform your own energy audit (it’s American but it still works for Canada, etc).
Purchasing.
If you going to be shopping anyway why wouldn’t you want to be paid to shop? A great way to have things cost less is to use an online coupon / discount site that automatically adds your coupon / discount to your check out (check out honey.com) and EBATES – a site that offers you discounts on the things you are buying simply by choosing to make your purchase through their site. That makes cents right?
Never buy new if you can avoid it. That’s a waste of good money. Never pay full price if there may be room to negotiate (wiggle room).
Always use a list. Lists, lists, lists. I never go shopping without one. Having a vague intention of “buying groceries” without having planned your meals for the week and listed your grocery needs is saving suicide. I guarantee you will put things in your cart that are “on sale”, thinking that you are saving money and then get home and realize you have no idea how to incorporate it into the plan. So it will sit, in the fridge, for a week and then you will throw it out. The other alternative is that you will forget key items needed for your weeks meal plan and have to make a subsequent trip: more trips = more gas. I don’t know what gas prices are like where you are but this week we are down to 144.9 per litre from 154.9. I’m not making any more trips to town than absolutely necessary!
Read : How to spend Less on food when the prices keep rising and Save time and money with meal planning
Last tip – use cash. Once you have built your budget then you know how much is available to spend. There’s nothing like using your calculator whilst adding things to your cart so that you don’t go over your budget. Don’t take any cards with you and you won’t be tempted to cheat. Give yourself a High Five if, when you checkout, you spent less than you budgeted for and still purchased everything on the list. Don’t go get yourself a coffee with that saving now! Put it in the emergency fund jar (or envelope).
The budget itself.
A budget is an awesome tool that is designed to get your finances on track and under control so that you can stop living paycheque to paycheque. It’s Not That Boring! I have a love for the feeling of accomplishment. When I have achieved the mission I feel great. I’m a winner. I am invincible (OK – not quite). I feel this way when I balance my budget. 
Previously we looked at keeping track of your outgoings, which you have to do to start with, but that is looking into the past. With a budget we are looking into the future (no crystal ball required). You have probably heard the saying “Time is Money” and in this instance, spending time now is designed to save you money in the future.
People ask – how do you start a budget and I say “Stop overthinking it”. Did you never head to a store for a specific purchase and tell yourself before you went how much would be OK to spend on it? That was budgeting. You did it unconsciously because on some level you were aware of the balance in your account right?
My Money Coach has an excellent budget tool that is free to download: Free Budgeting templates. Head on over and check it out. I personally just use a google sheet (like an Excel sheet). It’s simple and I like that.
Negative Nancy would say that budgeting makes me focus on the things I can’t do anymore. Well – you have no money – of course there are things you can’t do right now. Smarten up!
So – you’ve gotten this far. You have tracked your spending, you have built the budget, the budget balances, you have put it into practice and.. it didn’t work. Why didn’t your budget work?
There are only a handful of reasons as to why your first budget didn’t work (and it is like this for everyone – cue learning curve).
1. Your budget is unreasonable or unrealistic. When you allow $100 for a month of groceries for four people you are not being realistic.
2. You did not track all of your expenditure and so your budget is missing items.
3. You do not have enough income to cover even your basic outgoings.
Points one and two are an easy fix. Reassess your numbers based on actual spending and add in the items that you left out of the original worksheet. Does it still balance?
Point number three is where we would look for an alternative way out. I would recommend credit counseling at this stage. Here is the link to the company we used:- 4 Pillars credit counseling. Receiving expert help from knowledgeable individuals was invaluable. The stress relief that was obtained for us personally at this stage was worth more than money. By speaking with a professional we were able to draw up a plan to get us out of debt, save our house and the children’s RESP funds, build a budget and stick to it and emerge from the other side wiser and definitely debt conscious. In fact – two years later we still don’t have a credit card or any loans. I would rather curl up and die than go down that hole again.
I hope this helped start you on the track to becoming debt free and living your best life ever.
XO
Anna
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