One of the biggest challenges regarding finances can be learning how to cover all your bills and living expenses. Sticking to a budget with a limited income can reduce stress and set you up for long-term financial success. When you’re ready to create a budget, we recommend taking the following steps.
Create A Budget That Works for You
- Gather Information
Start by assessing your expenses, look back at how you’ve been spending pre-budget by reviewing your credit and debit card statements from the last three months. From there, you can figure out the categories, based on your monthly expenses, that you’ll need to allocate money to.
- Pinpoint Your Spending
Identify what you’re spending on average for each of the various categories of your budget. This is especially helpful if you’re thinking about budgeting to pay off debt.
- Adapt And Adjust
Rather than spending time making sure your budget is flawless, it’s more important to put it into action and amend as you move forward. If it’s your first budget, keep an open mind to adjustments, and don’t worry if you are over or under in a certain area at first.
How To Stick to Your Budget Over the Long Run
Learn How to Say No
In your early 20s it can be easy to succumb to peer pressure or feel like you need to buy things to keep up with an image. It’s okay to turn down plans if it’s going to stretch your finances too thin or if it just isn’t worth it. Your future self will be rewarded for making those sacrifices early in adulthood.
Keep Your Essential Expenses as Low as Possible
Having fewer expenses will make it easier to stick to a budget. The highest expenses you’ll have are rent and transportation. Consider a roommate or two, and don’t buy or lease a car that is more than 10%-15% of your income.
Consider What’s Important to You
Think about what you want your discretionary budget to go towards. You don’t need to do everything, and you don’t need to spend your limited income on anything that isn’t adding value to your life. This "value" category could include a gym membership, a “going out” fund, or making larger debt payments. Make sure to budget the things you care about so that your budget is something you’ll abide by.
How To Adjust When Your Expenses Outweigh Your Income
The challenging part of having a low income is that you have less wiggle room, which can make day-to-day decision-making a lot harder. Don’t let this intimidate you, a budget should be a guide to show you how to use your money. If your expenses outweigh your income, you can either reduce your expenses or increase your income.
Make Cuts
Look at your expenses, if this is your first budget there are likely many ways to make cuts. Start with unnecessary expenses: What can you live without? Once you’ve trimmed the nonessentials, assess whether you can reduce any essential expenses. This could mean moving to a less expensive apartment or buying produce on sale.
Increase Your Income
Spending less is a great start, but you can only cut your expenses so much, so the other side of the coin is increasing your income. Pick up a side hustle, such as ride-share driving or delivering food to earn extra cash. Think about skills you have that you can leverage to earn money online via freelance websites.
Take Control Of Your Finances Today
Budgeting allows you to get a handle on your expenses, spending, and financial goals. Having a budget in place early in adulthood helps you develop healthy financial habits and can reduce money-related anxiety. But remember, budgets are not a one-and-done exercise; your budget should evolve to adapt to your life situation and goals.
Visit our Enrich financial education courses to take control today. Learn more about budgeting with our budgeting course or use our budgeting tool.