How do you budget when money is tight?
If you are living paycheck to paycheck, the idea of coming up with a budget can definitely feel overwhelming, maybe even frustrating or scary.
Your money situation is already causing you stress or anxiety, and writing it down on paper might just feel like an extra punch to the stomach that you don’t need.
Creating a budget when money is tight is one of the best things you can do to start to change your situation.
I know that the word budget is often associated with restrictions and cutting back and limitations–all things that don’t feel like they really help your current situation.
But the truth is that a budget is the best tool you can use to gain true financial freedom.
Did you catch that? A budget leads to FREEDOM.
A budget allows you to make a plan for getting ahead financially. It allows you to find extra money to put toward savings or extra debt payments.
While, in the beginning, you may need to cut back and sacrifice a bit, the ultimate goal is to be free from money stress.
Now whether you are living paycheck to paycheck, or you have extra money in the bank, the principles for creating a budget are really the same.
How to Budget when Money is Tight
List Your Expenses
I’m going to have you do some steps out of the “usual” order I normally recommend for starting a budget. First you need to list all your monthly expenses.
Sit down with your bank statement, credit card statements and any receipts from paying cash you have. Figure out how much you spent last month, or in the last 30 days.
Next you need to put all those transactions into categories.
Start with your fixed expenses-these are the ones that are the same amount month in and month out. This might be your Rent/Mortgage, Utilities, Insurance, debt payments, subscriptions, etc. Any recurring payment that is the same amount each month.
Then categorize your variable expenses–these are the ones where the amount spent changes month to month. Some of these would include groceries, eating out, entertainment, household items, gifts, etc.
Last you need to add up all your expenses to get your total.
And take a deep breath. You can do this.
Write down Income
Next in our efforts to budget while money is tight is to list your income.
Look at your paystubs for the last month/30 days. Add up all income that came into your bank–the after tax income.
This step is very important because you have to know how much you have coming in and therefore how much you have to work with.
Compare Income to Expenses
Okay, here is the step a lot of people will cringe at. Take your total income amount and subtract your expenses.
This is where you see how your monthly spending is possibly impacting your ability to get ahead financially.
What if your Expenses are more than your Income?
If your expenses are more than your income then there are really two things you can do to improve your situation. You can decrease your spending/expenses or increase your income.
Remember, you can’t get out of debt, save or accomplish any of your other financial goals if you are constantly spending more than you are bringing in.
When you are ready to make a financial change, this is where you should start. And this is what people usually think of when they think about budgeting.
Remember, the goal is to win with money. And that takes sacrifice and dedication. But the result is so worth it.
Go back to your list of expenses. What are you spending that you can cut down and/or do without, at least until you get more ahead financially?
Start with your variable spending. Are you eating out a lot? Could you reduce that amount each month? What about impulse buys at the grocery store?
What about your fixed expenses? Are there subscriptions you could cut, activities you can do without?
When it comes to deciding about whether or not to cut certain expenses, ask yourself these two questions about each expense:
- Is this item a NEED or a WANT?
- If it is a NEED, is there a way to lower the monthly amount?
If the item is a want, time to let it go for awhile.
If it is a need (like phones and insurance) talk to the company and see how you can lower the monthly bill. Explain that you are having trouble meeting your monthly expenses and need to look into options for lowering expenses.
A word of caution in your effort to decrease expenses–do not cut your spending so far, all in one go, that there is no way you can succeed.
Doing this will only frustrate you more.
Instead, cut things back gradually when possible. If your grocery bill is obviously too high, strive to lower it by $50 or $100 the first month. If that works, try to lower it again.
Give yourself measurable, achievable goals within your spending so that you see progress and can succeed.
The other way to improve your situation, if your expenses are greater than your income, is to increase your income.
Just because you are making a certain amount of money right now, does not mean that is the most you can or ever will make.
If your expenses are higher by a couple hundred dollars each month, then getting a second job on the weekends might be all you need.
If the difference is in the thousands, then you might need to consider a new, higher paying job.
We are in an age where second jobs and side hustles really have the power to make a big impact on individual finances.
Don’t feel stuck with your current income because there are ways to increase what you bring home.
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Ready, Set, Go!
If you want to improve your financial situation, then either option–cutting expenses or increasing income–can help you achieve your goals.
The point is that you need to decide that will work for you. Can you cut your expenses enough that you can make progress without feeling added stress? OR would it be better take on another job or side hustle?
Or maybe the best option will be a combination of both.
Whatever will work better for you, do that. And if you try one for a while and it doesn’t do the trick, don’t be afraid to come back to the drawing board and try something else or a different combination.
The point is to make your budget and your financial goals work for you, not for anyone else.
Final Thoughts on Budgeting when Money is Tight
I know it can be scary, frustrating and down right difficult to budget when money is tight. The paycheck to paycheck struggle is real.
But you can break the cycle. You can achieve your financial goals and ultimately achieve financial freedom. If you are willing to sacrifice and put in the effort.
Change is hard, especially when it comes to personal finance. But I promise that change is worth it. And it is possible for YOU!
Leave me a comment and let me if this article helped you and what step you will take to improve your finances today.