How to Budget Your Money on a Low Income

How to Budget Your Money on a Low Income
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How to Budget Your Money on a Low Income

There’s no denying that the events of 2020 have monumentally impacted the majority of us financially. Countries around the world hit an economic slump and the UK went into recession for the first time in 11 years in August.

If you are one of the many people whose income has been affected by pay-cuts and furlough or even redundancy and job loss; then you’re probably still reeling and trying to figure out exactly how to manage your money on this new, lower income.

Please don’t despair. I’m here to help you and to tell you that you CAN survive on a smaller income than you’re used to. I will help arm you with the tools you need to manage your money and to learn how to budget on a small income.

Living on a Low Income

Our Experience of Living on a Low Income

Since our first daughter was born in 2017, we’ve gone from a strong, dual income household to losing the main wage and receiving only SMP, to then dropping to one solo, part-time income when I returned to work on reduced hours and my husband became a full time student.

So it’s fair to say that I know how to survive on a small income, and not only that – dare I say it, thrive. 

Our situation is ever-changing – I was made redundant in July 2020 and am due to have our second child in early November, therefore I am currently not earning at all. My husband has now completed his studies and enters full time employment in September so my wage will thankfully be replaced – but regardless of our situation, my budgeting approach and money mindset remains the same.

Because although it has been tough at times over the last three years, I also feel incredibly proud of how well we have managed during that time. In fact, our savings account currently sits at a balance higher than we’ve seen since we were saving for a house deposit… and that’s not including any redundancy money I will receive (note – it’s statutory, so it’s not a lot anyway!).

We’ve still managed to live. We have days out, we eat well, we have takeaways.

Yes, we’ve made sacrifices and reined in our spending, but it hasn’t been completely restrictive and the living on beans on toast lifestyle you might assume comes with living on such a low income (i.e. barely over minimum wage).

I’m not telling you this to gloat, but to reassure you that it is possible to live on a low income. If I can do it – so can you!

 What even is a Low Income?

A low income will mean different things to different people.

It will depend completely on your personal circumstances and situation.

You might have found yourself going from a six-figure salary to earning £50k a year.

Is £50k a low income by societal standards? No, probably not – but to the person who is used to earning double that, then yes, it is.

So what about actual low incomes? You know, those of us living on NMW or out of work completely?

Or how about the people who have just lost a small percentage of their income? But enough that it affects their finances.

Well the methods I am going to discuss with you apply to any and all of these situations – whether you have an on paper low income or a low income by the standards you’re used to. The same rules apply and will be helpful whichever side of the fence you fall on.

Budgeting on a Low Income

Which Budgeting Method Should You Use?

I personally budget with and would recommend using the Zero Based Budgeting Method.

What is ZBB? It basically means that your income less expenses equals zero. i.e. every single penny is accounted for and assigned a task.

So say for example, you were left with £100 after you’ve paid all your bills, put money aside for food, fuel and fun and everything in between – you allocate that £100 a line in your budget and make it work for you, rather than leaving it to be potentially frittered away.

You might put it in your emergency fund or towards another savings goal, you might choose to invest it, or you might decide to make an overpayment on your debt or mortgage – whatever you do with it, you’re aiming to make it work harder and get you closer to your bigger financial goals.

Need some help with actually drawing up your budget? I wrote a 3 part guide “How to Create a Budget from Scratch…and Stick to It!”

Read part 1 | part 2 | part 3

What If There’s Not Enough Money Coming In?

A surplus £100 at the end of the budget probably doesn’t sound realistic, in fact you’ll probably find that while you’re adjusting to life on a smaller income that there just isn’t enough money coming in to meet what is going out.

So what then? There are two main methods for dealing with a budget deficit:

  • Reducing your expenses
  • Increasing your income

I wrote this post, “How to Live on a Small Income and Thrive” a while ago, but it is stuffed full of ways to deal with a budget deficit. It’ll take you line by line through cutting your expenses, tell you how you can give yourself a payrise without getting a new job or taking on a second one, and ideas of ways you can make extra money on the side as well.

Need more help? Sign up for my free email course “10 Days to a Better Budget” which will show you the exact steps you need to take to reduce each fixed bill in your budget and point you in the direction of other resources which can help that you might not know about.

What Should I Do if I’m Budgeting on a Low Income for the First Time?

I recently joined a fellow money blogger on an Instagram Live where we discussed budgeting on a low income (watch it here) and he asked me, “What advice would you give to someone who is budgeting on a low income for the first time?” so here’s my thoughts.

Don’t Bury Your Head in the Sand

The worst thing you can do is pretend that you’re not in this situation and carry on as you were before.

It can be tempting to try and sustain the lifestyle you’ve become accustomed to but ultimately it will lead to disaster.

I know it’s hard – going from having nice things to suddenly having to make cut backs. To seeing your friends still enjoying nice things and going on holidays.

Don’t throw yourself a pity party – this situation won’t last forever. And don’t succumb to the ‘treat yourself’ mindset because you’re going through a tough time.

If you try to maintain your former income lifestyle you will quickly spiral into debt – and debt is much easier to get into than it is to get out of!

Focus on Your Priorities

What are the absolute essentials in your budget?

  • Mortgage/Rent
  • Household Bills
  • Food
  • Fuel/Travel Expenses (to get to work)

Once you’ve established what your essentials are – cut the rest.

Cancel subscriptions, cancel expensive gym memberships and stop eating out.

Hopefully cutting the inessentials will give you the breathing room you need in your budget, but if you’re still finding yourself in the red at the end of each month then you next need to tackle reducing these essential expenses.

Refer back to the What if there’s not enough money coming in? section for help with this.

Once your budget is on track and you’re used to managing this new, lower income you can add the fun stuff back in.

Budgeting is not about deprivation, it’s about making sure every penny works for you.

Track Your Spending

It’s easy to look over your Direct Debits and see where the bulk of your fixed expenses are but what about variable expenses? Food shopping, nipping to B&M for a £1 cleaning product and leaving with £70+ worth of crap or grabbing a takeaway coffee every now and again.

These expenses quickly add up and are not something you’d necessarily know to account for. Make sure small leaks aren’t sinking your budget and keep a strict eye on where every penny goes.

Summary

Living on a low income is hard at first – undoubtedly. And your budget won’t be perfect first time.

In fact, it might not ever be perfect – so don’t let a setback put you off!

I still make mistakes now and budgeting has been a way of life for me for years – some months there will be an unexpected expense I forgot to account for or a contract will auto-renew at a higher price.

These things happen but every month is a fresh start and a new budget.

Just remember – whatever situation you’re in – it’s not permanent.

Things will get better.

If you need further help there is help out there so seek it out.

StepChange is the UK’s leading debt charity offering free debt advice to those in need.

And a lower income might mean that there are now benefits that you are entitled to.

Whatever you do, don’t bury your head in the sand. Ask for help.

Enjoy this post? You can follow me on Instagram for more low-income living.

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