Disclaimer: The statements made in this post are the opinion of the author. They should not be viewed as financial advice. Please consult with a financial specialist before making any financial decisions.
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Have you ever felt like budgeting is pointless because you don’t make enough money to keep any of it anyway?
Or maybe you’ve tried to budget and it was so discouraging that you stopped?
I’ll be honest, most Americans feel that way.
If you’re feeling like a budget is impossible or too discouraging then keep reading.
I’ll show you how to start a budget and maintain a budget for poor people or people who just don’t think they make enough money.
This won’t be a budget by the numbers, if you want to see an example budget you can check out this Teacher’s budget.
Instead, I want to help you get in the right mindset to start your budget and keep it going so that you can be successful.
So how do you budget when you don’t make enough? Easy, start by not starting with a budget.
Let me explain.
Steps to Start a Budget with No Money
Step 0: Discover Your Budget, Don’t Create It
This is step 0 because it is before you even make a budget. Don’t start a budget without taking this step!
The biggest mistake that people make when they set out to create a budget is they make it up.
If you’ve never budgeted before do you know how much you spend on gas? Groceries? Candy?
But everyday people sit down to make a budget and they just assume they know how much they spend. $700 to rent, $300 to the car, $400 for food, and so forth.
You may think to yourself you’ve done a great job, but you’ll discover that you’re completely wrong at the end of the month.
That is why the first step to building a budget isn’t budgeting but tracking your spending.
If you don’t know how much you are spending then you can’t budget for it, simple as that.
Track Your Spending in Real Time for Best Results
A lot of people think that tracking their spending is easy. All they have to do is use an app like mint, which automatically syncs with your credit cards, and the job is done. While that does track your spending, it isn’t super helpful upfront.
Another suggestion I often hear that makes me cringe is “go back to your credit card statements and categorize everything you’ve spent money on. Then create a budget.
The problem with this approach is if you’re starting a budget to keep your spending in check then why would you build it on your poor spending habits from last month?
By tracking your spending real time you can start from a clean slate and build good financial habits in the process.
How to Track Your Spending
Here’s what I recommend. Get out a notebook (or open an excel spreadsheet if you are really THAT against paper) and draw up a few simple categories.
Mine are income, food, bills, and household. It really doesn’t have to be complicated.
Anytime you get paid money, put that number in the income section. Anytime you buy food (groceries or eating out) put it in the food section.
Bills include housing, insurance, utilities, payments, etc. Basically anything you can expect to be roughly the same each month. When you pay those write it down. And household is everything else, so if it doesn’t go in one of the others write it there.
I’ll be honest with you, you might need more space for household and food the first time you do this.
Everyday when you get home, write down exactly how much you spent and where/on what. I recommend totaling the amount of each category AT LEAST weekly, just to make sure that you’re aware of how much you’re spending.
As you go you will start to notice trends of where you are spending your money. And you can make corrections to your spending real time.
You might think, Do I really go out to eat that much? Or why am I still spending money on that membership? Or what is this charge that just popped up on my credit card?
When you have those types of questions, don’t wait until the end of the month to adjust your budget. Do it now.
After a month or two of doing this you will have a better idea of what you spend on each category. With that in mind you can start to form an accurate budget.
Step 1: Don’t Spend Every Dollar In Your Budget
Now that you have an idea of what you spend each month you can create a budget. I’m not going to get lost in the weeds on that, because creating a budget is the same whether you make $1,000 a month or $100,000 a month.
You figure out your take home pay. You pull out fixed expenses (things like your housing and car payments). You put money in savings. Then you chunk out the rest of the money for everything else.
The thing I want to focus on specifically is putting money aside for savings.
If you are poor or feel like you’re just spinning your wheels then deliberately saving money is vitally important.
The first law of personal finance is every dollar that can be spent will be spent unless it is given another job.
The purpose of the budget then is to give every dollar a job.
How to Save Money First
Saving money before buying everything that you “need” may seem counterintuitive. But, it is the only way to keep money in your pocket every month.
So decide how much you’re going to save every month and–this is key– set up an automatic withdrawal to put that money into a completely separate bank account. Preferably in a completely separate bank.
By putting that money out of reach you can let it grow long term. As it does you won’t feel poor anymore. That’s the power of money in the bank.
Remember, it doesn’t have to be a lot, but you should start with something. “I’ll save next month” is not a good strategy.
Step 2: Cut Expenses Systematically
Now that you have a budget going, you might have noticed that you spend way too much on something. That’s completely normal.
Perhaps you spend too much on eating out. Or on Amazon purchases. Or Costco… But the point is that you probably spend more than you want to somewhere.
Now that you’ve identified something that you spend too much on, you can start trying to cut back.
Don’t cut everything all at once. It will just make you miserable, instead do one thing at a time.
And don’t cut that one thing out entirely. You don’t have to stop spending money, but you could cut your spending by 1/3 or in half in that category. Whatever you think is doable.
The key is to take those savings and hold on to them. Don’t spend them on something else.
No matter how poor you are, there is always something you can spend less on. Even if it requires getting a little assistance from the government to do so (as a last resort).
Trimming the fat from your budget will give you breathing room, however, small to start making financial progress.
Even if you can save only $50 a month, that is $600 you’ve saved in a year which can be the difference between an event being a financial setback or a financial disaster.
Please note that if you’re struggling to find something to cut back on, your Big 3 expenses are probably the biggest issue. Take a close look at those.
Step 3: Set Financial Goals In Your Budget
Now you have to keep it going. Once you get into a more financially stable place, it can be really easy to relapse and lose momentum.
Don’t let that happen to you by making a monthly financial goal.
It could be to save $20 more than last month. Or to get a larger emergency fund. Or to pay for something you want in cash.
Anything that will keep your eye on the prize from month to month will be incredibly helpful.
I would also recommend having a reward for yourself when you meet a financial goal. That can be as easy as making time for a hobby or watching a favorite movie and relaxing.
The proper motivation is the key to continued success.
Step 4: Keep Your “Cheat Day” Money
In dieting there is something called a “cheat day”. This is the day where you don’t have to stick with your diet.
The idea behind it is that you will be better at sticking with your diet long term if you have one day to cheat.
Budgeting and dieting are very similar ideas.
Instead of a cheat day though, you need to have a certain amount of spending money that isn’t assigned a job.
It doesn’t have to be much, but having $20 to use for a movie night, or a video game, or buying sweets can help you keep the rest of your budget in line long term instead of cutting out all of the fun you have.
Even if you’re super poor, make space for fun. Everybody needs it.
Budgeting When You Don’t Make Enough Money
Nobody ever makes “enough” money because there is always more to want. The questions is can you live with the money you do make?
If you are getting further and further in debt every single month, then you probably think you don’t make enough money. But the truth is, you probably just spend too much of it.
That is a hard mindset to have because we are constantly hearing people complain about not making enough money. It is engrained in our system.
The problem is this. I don’t make enough money takes the responsibility for your financial troubles and puts it on someone else. That isn’t a healthy way to cope with your problems.
I spend too much money takes the responsibility back which is empowering.
You can overcome any financial problem you may have with this mindset.
What is the hardest part of creating a budget for you? What could you cut out to make space for more savings each month? Tell me about it in the comments below.
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A list of definitions used on this blog can be found here.
Fixed Expenses: Monthly expenses that are consistently the same amount. Examples of this are mortgage or rent, car payment, and insurance premiums.