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How to Budget When You’re Broke

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Setting and living on a budget when you're strapped for cash is difficult but not impossible. Here are seven simple steps to making the impossible possible.

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:

  • Alcohol
  • Clothing
  • Groceries
  • 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?

Hulu with Live TV is an excellent replacement that only costs $55 per month. You can read our review of Hulu Live, including all of the channels you receive on the platform here.

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
  • Entertainment
  • Subscriptions

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.

Setting and living on a budget when you're strapped for cash is difficult but not impossible. Here are seven simple steps to making the impossible possible.

Summary

 

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?

 

 

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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.

57 Comments

  • Hey Laurie!! That’s great new.. Johns a great guy!
    I think when one is broke and they want to budget they can but the biggest part is the plan. When it comes to budgeting all it becomes is a way to track money so we know where it’s going and how much to spend. Planning and knowing everything about one’s personal finances is the starting point. I think once people get into the swing of it they will learn where they need to start cutting expenses and find a way to make ends meet the best they can whether through those cuts or making more money. Where there’s a will, there’s a way.

    • Yes, I’m so excited to be staff writing for someone as cool as John. :-). You’re so right about the plan being such a huge part of thing. For us I know, it’s become habit to scrutinize every month’s spending to see where we can cut back. It doesn’t even feel like punishment, just more like fun. Thanks, Mr. CBB 🙂

  • Great post, Laurie! Prioritizing expenses is so important. Knowing what expenses you can and can’t live without is definitely an important part of budgeting.

  • I think having a budget to follow when you’re broke is really essential. I do agree with you that when a person is broke, he can’t really afford to spend money on any unnecessary expenses or extras, and having a plan can really help them out.

    • It requires some balance, but yes, you have to be very careful about spending on unnecessary items. When you’re broke and the budget is super tight, the smallest of extras can cause huge problems. Thanks for the comment, Mark. 🙂

  • I like the idea of evaluating your situation and making a plan. When people say that can’t do something it just pisses me off that they usually say that before they attempt to do anything. Don’t give up before you even start. There are usually a lot of things people CAN cut out but dont want to!

    • I SO agree, Thomas! Facing the situation and cutting those things out is likely the most difficult part of the whole thing, but it CAN be done. I remember when we decided to go back and add up all that we spent in 2012 and categorize it. I got about two months in, saw how much money we had wasted, and about had a nervous breakdown. It was horrible. But it’s what led us to the place we’re in now: making changes for the better!

  • Catherine says:

    I would add when prioritizing bills pay ones that will effect your credit rating after necessities (1- rent/mortgage, 2- heat/water, 3- debts) when we used to have to play aroundwith our bills I’d always make sure mortgage, heat, debts were paid followed by cell phone whilch can effect credit rating but may play around with say water or internet bill if necessary.

    • That’s a great point, Catherine. As long as they don’t shut off the water. 🙂 I remember being a kid one time and my mom got an electricity shutoff notice in the middle of winter. Yikes! Seriously, though, you’re right one here. It takes some creativity, but it can be done.

  • Yayyy Laurie! So awesome you’ll be writing for John. If anyone can give awesome advice on budgeting, it’s you. 😀

  • Great post!
    It’s much harder to budget when you’re broke, that’s for sure! I do think these are good tips and that it can be done with some creative thinking!

  • AverageJoe says:

    “…and stick to it” is my favorite part. Post the plan all over the place so you remember….tell everyone you know….just stick to it!

  • There are so many expenses we think we “need” that we really don’t. If you’re in a desperate situation, trying cutting something out for a month and see if you miss it. Even if you find that you do, you’ll probably also find that it wasn’t the worst thing in the world to not have it for a month. Then you have the ability to make a truly objective decision rather than a theoretical one based on how much you “might” miss it.

    I will warn against simply look for ways to earn a higher interest rate on your savings. If you’re really broke then chances are good you don’t have much savings to begin with and therefore you really need to know that whatever you do have will be there when you need it. Facing that reality, trying to chase a higher interest rate will likely put you more at risk than you can afford. There are certainly simple things you can do like open an online savings account instead of sticking with your brick-and-mortar, but beyond that you really shouldn’t chase higher yields that put your money at risk. That’s a recipe for getting yourself into even more trouble.

    • Agreed about the savings rate, Matt. Also, about cutting things out: we have cut SO much stuff out, and we don’t miss a lick of it! It brings so much more gratification to know we are getting our finances in order than it ever did to have/do all of the stuff. Thanks for the input, great advice!

  • I agree with Matt on the whole needs vs wants thing. If you are broke, you need to figure out why that is. What are you spending your money on? Otherwise, you will always be broke. It’s hard to change, and it’s easy to complain about having no money. You can always find someone to chime in with you on that one, but anyone can do it. Great to see you here, Laurie!

    • Exactly! When we sat down and tracked our expenses, we were flabbergasted at how much we were simply wasting on stupid stuff like pretzels at Target and extra trips to the grocery store because we wanted nachos for dinner. Ridiculous!

  • I agree! I like how you talk about having a plan, I think this is really the key. Having a plan to stay on a budget is really the first step in the process. Calling companies for better deals is another idea too.

  • Great to see you here Laurie! I don’t have a budget but I am broke with huge debt to pay and my only real piece of advice is to increase that income and cut out the ‘wants’ in your life and after awhile you will find that you didn’t even really miss it!

  • Great post Laurie! Good to see you on here! Budgeting when you’re broke is no doubt a lot tougher. But I think creativity is the key – looking for creative ways to reduce your expenses and become your own greatest resource. Whether you’re broke or not, things will break down and it’s important to not only budget for those emergencies, but to great creative and learn how to do some of those things yourself.

  • Great post Laurie. It’s not easy trying to budget further when you feel broke already but it just goes to show it can be done, as you say you’ve just got to get real about what you want and what you really need.

  • I think prioritizing your expenses is important for everyone, but even more important for people struggling with debt. Great post Laurie.

  • Alexa says:

    From personal experience having a plan to follow when you are broke is key. I like to make a budget for each one of my paychecks. I list everything I am going to pay as soon as I get money in my hand. This make me feel more in control.

  • Great post Laurie! It’s the hard part for me about really sticking to the budget but I am working on it. It’s so important to just crack down on expenses and leave the credit cards at home if necessary to follow through. Like you mention about paying bills–I do those as soon as the paycheck hits the bank. Then what little money I have left (outside of saving for next paycheck’s expenses) is what I can work with.

    • I agree, Tara, it can take a lot of discipline. Nearly every day we stand at a spending crossroads of some sort, and I always feel SO much better when I say “no” to the unnecessary stuff, or when I make it through another day without spending.

  • I completely agree. I was really badly in debt not too long ago and it took a lot of mirror time to realize that I was blowing through money like there was no tomorrow! It is hard to determine needs and wants and which wants you would be unhappy without (makeup for me 😉 ) As far as the additional income, it is a savings grace and can help with the transitioning period of trying to get caught up and out of the ditch you put yourself in. Another additional source of income that I’ve come to love is selling groups you can join on FaceBook.

    • Haven’t heard of the FB groups. Sounds interesting! I’m with you, Betsy, about facing the mirror and the wants vs. needs battle. It’s getting easier, but it was a very difficult battle in the beginning.

  • Hey Laurie welcome to FR!! Love your humor

  • Congrats on the new gig Laurie! I love the tips.

  • Michelle says:

    WOHOOO! Congrats on being a staff writer, you are one of my faves 🙂

    Cutting expenses is very important. Analyzing what you are spending can be a shock to some.

    • Same here, Michelle! (I mean you, not me, being one of my faves, LOL. 🙂 ). I’m pretty psyched about my first staff writing gig. Yeah, that analyzing stuff was tough for us in the beginning, but it’s really changes our lives.

  • krantcents says:

    A budget is important whether you are rich or poor. Your advice works for both! I use these concepts myself and I am not broke.

  • pauline says:

    Congrats Laurie! I have a few broke friends who must eat out because they work so hard, and they must take a cab home because they stayed out late and they must buy XYZ because it’s just $25. I’ve stopped trying to put some sense into them but it pains me to hear them complain about being broke.

    • Thanks, Pauline!! Oh yes, we used to use those same excuses all the time. And as we’ve learned during trying to help others, it’s usually no use. They have to want to not be in denial anymore. Sad but true. 🙂

  • Congrats on the new gig, Laurie! You and Jon will make a great pair. 🙂 While being broke is never an ideal situation, the one good thing I believe it forces you to do is really assess how you spend your money and define wants vs needs. A lot of people don’t track how they spend their money and when they do, they are often surprised by where it goes. Making those initial cuts hurt … sometimes a lot … but over time you discover how clutter you had in your life and learn to value the simple pleasures life has to offer.

    • Thanks, Shannon! I’m pretty excited about it. 🙂 I know being broke really forced us to do that, Shannon. And you’re right on track about loving the simple pleasures. As I said to Matt, I can’t think of one thing that we’ve cut out that we miss. Gaining control over our finances brings SO much more pleasure than all of the “stuff” we used to spend money on!

  • anna says:

    Congrats on the new staff writing position, Laurie! I couldn’t agree more with having a plan and, more importantly, sticking with it. It’s one thing to think of a theory, but quite another to put it into practice! At times, motivation to keep on can wane, but the PF community (well, and real life loved ones) is awesome in terms of finding inspiration and staying motivated!

  • E.M. says:

    I totally agree with this Laurie! It’s exactly what I did for my parents. They didn’t want to know how much they owed before, but with the selling of the house and moving, they got a decent amount of money that motivated them to finally get rid of their debt. They should know how expenses look after their first month, but they have a decent plan in place now. They are figuring out which credit cards to pay off and then they’ll have a nice chunk of debt out of the way! I’m really excited for them because it’s been holding us back as a family for a while.

  • I still budgeted when I was broke in school. I think it’s even more important. It’s just not as fun! Great tips

  • Budgeting is simple (well, budgets that work are simple… budgets that fail are usually pretty complicated). And budgeting is the only fool-proof way to “beat broke.” Broke sucks. But broke is temporary, as long as you budget…

    • In the past, I’ve found that our budgets failed only because we weren’t ready to truly make changes in our lives. We must’ve been aware, deep down inside somewhere, that we were blowing money big time, because we could never handle looking at our spending numbers for more than 2 or 3 days. Budgeting isn’t hard, but it is difficult. 🙂

  • We kept our cell phones as we didn’t have a landline when things got rough. Maybe it’s a 21st century thing, but being able to get in touch with people is a necessity in my mind. If for nothing else (like finding gainful employment and having a number a potential employer can reach you at,) for safety. We kicked that cable to the curb, though!

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