How to Budget When You’re Broke
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You know how it feels. You look at your bank account only to see a small balance and think you can’t manage your money. Many think it’s impossible to budget when you’re broke. I know that feeling. When I was mired in debt I thought it was a ridiculous idea to believe living on a budget is possible.
A budget is achievable if money is tight or if you’re short on money. I know a budget feels restrictive, but it’s not. A budget allows you to create a plan for your money and begin to pursue financial stability.
The first step is to start. This isn’t always easy, especially if money is tight. In my case, my parents struggled with debt when I was a child. I took on debt in college, and thought it was impossible to budget, much less master my money.
That is all a lie. You can budget when you’re broke. It just takes a little effort. This post shares a few of the tips and tricks I used to budget when I was broke and improve my finances.
How to Budget When You’re Broke
Do you want to break the cycle of living paycheck-to-paycheck and not dread looking at your bank account? Here’s how to budget when money is tight and kill that feeling.
1. Assess Your Finances
The first step to creating a budget is taking an honest look at your finances. You need to sit down and look at how much you earn each month and how much you spend.
This sounds difficult, but it’s simple to accomplish. Get a piece of paper and pen and your paychecks from the past month. You then want to look at your bank statement to find everything you spent during the month.
This step is vital because it shows you what comes in and what goes out each month. If more is going out, you want to stop that immediately. I’ll discuss cutting costs later in the post.
Tiller is a terrific tool that can help you with this step of analyzing all of your expenses. The service connects to your bank account and places all of your transactions in an easy to use Google Sheet.
This will help you have everything in one spot. You will see how important that is when you start cutting expenses.
2. Make Extra Money
One overlooked option to help budget when you’re broke is earning extra money. Extra income helps you in one of two ways: it either helps increase your income, or it gives you the ability to kill debt faster.
The first place to look for extra money is your day job. Can you work overtime hours, or take on additional tasks? If so, use that income to help with your budget.
If not, you can use apps to find side jobs that require little skill and work in your spare time. One popular option is to find work through on-demand delivery apps.
Postmates is one popular choice to make money on the side. The Postmates fleet app lets you deliver items to people, including:
- Take-out meals
You can create your own schedule with Postmates and earn up to $25 per hour, inclusive of tips. You can learn about Postmates and the other best paying delivery app gigs here to learn which is best for you.
Extra income was the key to me learning how to budget when money is tight. The extra money improved my ability to kill debt and take care of other necessities.
Regardless if it’s for a temporary need, or for a longer-term situation, don’t overlook the power of making money on the side.
Lastly, if possible, start saving some of your extra income. Even if you only build up a savings of $250 or $500 that can help a lot.
Consider a bank like Chime Bank as they have no minimum balance requirements and round up all your purchases and puts those amounts in your savings account.
3. Kill the Overspending
We all face different circumstances. I was in debt because I was overspending on things I did not need. I was not spending on glamorous things, but I was using credit cards to finance a life I wanted but couldn’t afford.
Now is the time to take a serious look at the things you spend money on that aren’t necessities. Cable is a perfect example. Do you spend $100+ per month on cable?
Your cell phone bill is another example. Do you spend $50+ per month on your cell phone? You can switch to Ting Mobile to save money. Their average bill is $23 per month and all Frugal Rules readers receive a $50 credit to start.
Cable and cell phone bills are the tip of the iceberg. Here are a few other unnecessary expenses you can cut for good, or significantly reduce:
- Eating meals out
- Internet bill
Each situation is different, so you may have other areas you can cut. This is why analyzing your spending is so vital when trying to budget when you’re broke.
4. Analyze Your Spending on Necessities
Cutting needless items is the first part to slashing your expenses. The second is to look at how you can reduce spending on items you need. This will help you free up money in your budget.
Here are a few ideas of where you can cut:
Get a roommate – Do you live by yourself? Getting a roommate can help you reduce your rent or mortgage payment so you can apply the savings to other areas of your budget.
Refinance your mortgage – How much is the interest rate on your mortgage? A reduction of even .75 percent can save significant money each month.
You can use a resource like LendingTree to compare rates to find the best one for your needs.
Find a new auto insurance provider – When was the last time you compared rates for auto insurance? If it’s more than a couple of years, you’re leaving money on the table.
You can use Gabi to compare up to 20 insurers at once and find new coverage in under two minutes.
Change where you shop for groceries – You obviously need to eat, but it’s possible to spend less. Search for cheap grocery stores near you to help cut your bill.
You can even increase your savings by using an app like Ibotta to receive cash back on your shopping.
5. Attack Your Debt
Debt is one of the main causes making it difficult for people to budget with little money. It was for me, and it wasn’t a winning battle until I was serious about the debt.
If you have significant credit card debt, it’s likely interest is keeping you back from making positive financial headway. The first step is to look for ways to reduce your interest rates through consolidating or refinancing your debt.
This allows more of your money to tackle the debt instead of just paying interest.
Fiona by Even Financial is my favorite resource to lower interest rates. The platform lets you compare rates from up to 17 lenders, in under two minutes.
Select one that best fits your situation. This lets you have just one payment each month, save money, and pay off the debt quicker.
6. Contact Creditors
Again, debt is a key player in keeping many from living on a budget with little money. If you’re in debt, and are broke, you need to contact your creditors and explain the situation.
Please don’t do any of the following:
- Ignore them
- Lie to them
- Agree to an unreasonable payment plan for your situation
None of the above will help your situation. Instead, tell them the truth and ask if they can help. If they’re unable to help, and you’re deep in debt, consider using one of these credit repair companies to help you find a solution.
Avoid payday loans at all costs. Payday loans may seem like a good choice to get creditors off your back. They’re not. Payday loans only make the situation worse.
7. Put Your Budget in Writing and Revisit it Often
I know it feels like a lot of work, but writing everything down is the best way to budget when you’re broke. Start with your income, then write down all of your expenses.
You can do this on a piece of paper, use Excel, or a tool like Tiller. The method you use really doesn’t matter as much as doing the practice of putting your budget in something you can view.
You want to be realistic in each amount you list. If you’re not realistic it’s possible to have your budget go off track and causing additional problems.
As you start to live on a budget, you want to regularly revisit it. Maybe you look at it each week, or monthly. It’s the act of monitoring that matters, not the interval.
As you revisit your budget, look for where you may need to change. You want to streamline it so you can stay on a good footing with your finances. You may even realize you don’t need to get help paying bills through this practice – just that you need to watch your spending.
It’s difficult to know how to budget when you’re broke. It feels like you never have money to do anything you want, and that it’s always going to be a struggle.
With a little effort you can break this cycle. It’s not always easy, but it’s possible. Instead of looking at the difficulties, look at what improving your money habits will do for your life.
A budget breeds freedom, which is far better than struggling each month or, worse yet, ending up in debt. If you take it a step at a time, you can confidently create a budget that gives you the freedom you want in life.
What are your tricks to living on a budget when money is tight? How often do you look at your budget? What is one thing in life living on a budget will help you accomplish?
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.
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