How to Budget Money on Low Income?

No matter your income, mastering the art of budgeting your income is the top priority to be or stay wealthy. Especially knowing how to budget money on low income is even more important since the resources are quite limited. Learning how to budget money on low income will help you make the most of your income and achieve your financial goals down the road.

In this post, I explain to you how you can budget money on low income, show you it’s important, and give some little tips and tricks here and there to help you manage your finances effectively. Having a low income doesn’t mean you can’t or shouldn’t budget your money.

Why Budgeting on a Low Income is Important?

Budgeting is a critical skill for everyone, but it becomes even more crucial when you have a low income and need to learn how to budget money on low income. Understanding the importance of budgeting on a low income is the first step towards taking control of your money and working towards a better financial future. The first step to learn how to budget money on a low income is to understand why you are budgeting on a low income. It’s important that it doesn’t feel like you are doing it for nothing.

What is considered low income?

Reasons why budgeting and learning how to budget money on a low income is important

  1. Maximizing Limited Resources. When you have a low income, every dollar counts. Budgeting allows you to make the most of your limited resources by ensuring that your money is allocated wisely and used for essential expenses.
  2. Avoiding Debt and Financial Stress. Living on a low income often means there is little room for unexpected expenses or emergencies. When you create a budget, you can plan ahead and set aside funds for emergencies, reducing the need to rely on expensive loans like credit card loans or bank loans, which can lead to further debt and financial stress.
  3. Achieving Financial Goals. Budgeting helps you set and work towards your financial goals, regardless of your income level. Whether your goal is to save towards a down payment for a home, pay off all your debt, or build an emergency fund, you can prioritize and allocate funds toward these goals more easily.
  4. Gaining Financial Awareness. Budgeting helps you develop a clear understanding of your income and expenses. You can track your spending, identify the areas where you can cut unnecessary expenses, and make informed decisions about your financial priorities.
  5. Creating a Safety Net. With a low income, unexpected expenses can quickly derail your financial stability. You have to have a safety net that you trust by setting aside some money for emergencies or unforeseen circumstances. This will help you have less stress and help you with financial hardships.

The Benefits of Budgeting on a Low Income

  1. Improved Financial Discipline. Budgeting requires discipline and self-control. If you learn to keep to a budget, you develop positive financial habits and reduce the temptation to overspend or make impulsive purchases.
  2. Reduced Stress and Anxiety. It’s no secret that financial stress is a common concern for people with a low income. However, budgeting can take some of this stress by giving you a clear roadmap for managing your finances and ensuring that your money is allocated appropriately.
  3. Increased Savings. When you budget, you can set aside money more easily, no matter how small. Over time, these savings can accumulate and provide a safety net for future expenses or help you achieve long-term financial goals.
  4. Better Financial Decision Making. When you have a budget in place, you can make better decisions based on your income and expenses. This includes prioritizing essential expenses, evaluating the affordability of discretionary purchases, and avoiding unnecessary debt.

Analyzing Your Income and Expenses

Before you can create an effective budget on a low income, you must have a clear vision and understanding of your current financial situation. This involves analyzing both your income and expenses to determine where your money is coming from and where it is going.

Identify Your Sources of Income

You have to start by understanding what your income is and how many different incomes you have. Generally, there are four different types of income that you can receive:

  • Employment Income
  • Side Hustles or Freelance Work
  • Government Assistance Programs
  • Investments or Rental Income

Understand these in detail and know how much you are making. This will allow you to not just know how much you are making but also how much you need to increase each.

Analyzing Income and Expenses

List Your Monthly Expenses

Money in, money out. In the first step, you learn the money. How much do you make? Now, you must know the money out. How much are you spending and how much of this is fixed expenses like rent, utilities, groceries, etc? How many of these are variable expenses that you may reduce or cost.

Four types of expenses include:

  • Fixed Expenses
  • Variable Expenses
  • Debt Payments
  • Subscription Services

Differentiating Between Needs and Wants

Once you have listed your income and expenses, it is important to differentiate between needs and wants. This step will help you prioritize your spending and identify areas where you can potentially cut costs.

  1. Needs. Needs are the expenses that are essential for your basic needs, such as housing, utilities, food, transportation, and healthcare. These are expenses that you cannot go without and should be prioritized in your budget. Needs part will always be there, so you can’t cut them off completely but you may reduce them if possible.
  2. Wants. Identify the expenses that are non-essential and discretionary, such as dining out, entertainment, shopping for non-essential items, and luxury services. While it’s important to enjoy some of these things, they should be evaluated in terms of affordability and priority.

Creating a Practical and Effective Budget

Once you finished analyzing your income and expenses, you can now create a practical and effective budget to match your financial goals.

Setting Financial Goals

  1. Short-Term Goals: Start by identifying your short-term financial goals. These can include paying off a specific debt, saving for a small purchase, or building an emergency fund. Set realistic and achievable goals that you can accomplish in a few months to a year.
  2. Long-Term Goals: Next, consider your long-term financial goals. These may involve saving for retirement, purchasing a home, or funding your education. Have a clear picture of these goals and then break them down into smaller milestones. You can manage them more easily.
  3. Priority Ranking: Prioritize your goals based on their importance and urgency. This will help you allocate your income accordingly and focus on the most critical goals first.
Short, Mid, and Long-Term Financial Goals

Allocating Money to Different Categories

  1. Essential Expenses: Begin by allocating funds to cover your essential expenses. I consider these essential expenses as rent, utilities, groceries, transportation, and healthcare. These are the expenses that are necessary for your basic needs and should be given the highest priority in your budget. They are also in the ‘need’ section.
  2. Debt Repayment: In most cases, low-income households have some sort of debt. If you don’t, you are lucky, and you don’t have to do anything with it. But if you do, allocate a portion of your income towards debt repayment. Pay off high-interest debts first that cost you a lot of money while making minimum payments on other debts. Consider using strategies like the debt snowball or debt avalanche method to accelerate your progress.
  3. Savings and Emergency Fund: Allocate a portion of your income towards savings, even if it’s a small amount. This will be your emergency fund to cover unexpected expenses. Gradually increase your savings contributions over time to work towards the short-term and long-term financial goals that you set for yourself.
  4. Discretionary Expenses: After addressing essential expenses, debt repayment, and savings, you can allocate the remaining funds towards discretionary expenses. This category includes non-essential items like dining out, entertainment, and personal shopping. Set a reasonable limit for these expenses and be mindful of your spending. This is the ‘want’ section.

Prioritize Essential Expenses

Now, as I mentioned above, the ‘need’ section is your essential expenses. I would like to include the debt repayment and savings here, as well. However, you still need to prioritize these expenses.

You should put them in an order and go from the bottom to put your money on them. For example, if you are out of money on the 3rd step and the fourth is savings, you have to skip the savings. You shouldn’t go from the second to the fourth; you have to keep it in line.

This is my personal prioritization with essential expenses:

  • Housing
  • Food and Groceries
  • Transportation
  • Healthcare
  • Savings
  • Experiences (eg. Restaurants, drinks, etc.).

Tips to Reduce Expenses and Increase Income

Okay, perhaps the most important thing when you don’t have enough income is to be able to cut your costs and increase your income outside of your job. Neither of these is actually easy, especially cutting your costs on a low income because there isn’t much to cut.

However, there are some small tips and tricks here and there that you can do to reduce your expenses and increase your income.

Ways to Reduce Expenses

  1. Evaluate Your Subscriptions. Perhaps one of the easiest ways to cut your expenses is to cut some of your subscriptions. We pay too much for things we don’t use. Review your subscription services and identify those that you no longer use or can live without.
  2. Cook at Home. Plan your meals in advance and cook at home. Eating out is generally one of the highest costs. Cut that out as much as you can.
  3. Shop Smart. Compare prices in different markets, use coupons, and follow sales and discounts when shopping for groceries, household items, and clothing. Consider buying generic brands instead of branded products to save money.
  4. Reduce Transportation Costs. Explore alternatives to save on transportation expenses, such as carpooling, using public transportation, walking, or biking when possible. Additionally, ensure your vehicle is well-maintained to avoid costly repairs.

Ways to Increase Your Income

  1. Part-Time Jobs or Side Hustles. It’s not a secret that the best way to increase your income in the short term is by working. If you already have a 9-5, consider doing a side hustle that you can work in your free time. These will help your income drastically. Freelancing, tutoring, pet walking, and so on are some good opportunities.
  2. Utilize Your Skills and Talents. Similar to a side hustle but can create a slightly different type of income by using your skills. You can offer freelancing services on design, writing, and photography on platforms for work-based income.
  3. Renting Out Assets. If you have a spare room, consider renting it out on platforms like Airbnb. You can also rent out unused parking spaces or storage areas to generate additional income.
“Other” Income

How to Save Money on a Low Income

Okay, we talked about how you should budget your money on low income and how you can make the best out of it. But can you save money on a low income? That’s a tough question. It’s not really possible in most cases, but you can try to make the best out of what you have.

These are the steps that you can take to save money on a low income:

  • Automate Savings
  • Track Your Expenses
  • Seek Financial Assistance Programs
  • Practice Minimal Living

The first two are quite important. Every month, the moment your paycheck arrives in your account, you must automatically do everything. Bills, housing, groceries, savings, whatever, they must go to their respective accounts. It will be easier to know how much is left for you.

Sticking to Your Budget and Adjusting When Necessary

Creating a financial budget is just the first step towards financial success on a low income. It is equally important to stick to your budget and adjust as needed to ensure its effectiveness.

Track Your Spending

Start by keeping track of every expenditure, no matter how small. You can use any type of tool you want. There are expense tracking apps, but they are generally paid, and that’s not good if you’re on a budget. Use a notebook or Google Sheets and create your own tracking sheet.

Once you do this, you must set aside time each week or month to review your expenses and compare them to your budget. This allows you to identify any discrepancies, adjust your budget if necessary, and stay mindful of your financial goals.

If you are still struggling to keep track, use a special system. The best one is the cash envelope system for budget categories where overspending, such as groceries or entertainment, is common. Withdraw the allocated amount in cash and divide it into envelopes. Once the cash in the envelope is gone, you know it’s time to stop spending in that category.

Reviewing and Adjusting Your Budget Regularly

What people generally miss is the assessing part. You have to regularly assess your budget to make sure that your situation is still aligned with your financial goals and circumstances. As your income or expenses change, make necessary adjustments to reflect your current situation.

Pay attention to areas where you consistently overspend or struggle to stick to your budget. Identify the underlying reasons behind these challenges and find strategies to overcome them. This may involve finding alternative, more affordable options or adjusting your spending habits.

Meanwhile, don’t forget to acknowledge and celebrate your financial milestones along the way. This will help you keep your motivation and inspire you to continue your budgeting journey, even when faced with challenges.

Dealing with Financial Emergencies

Things happen. This is life. You have to deal with the financial emergencies that come in your path.

As I mentioned, having an emergency fund is the first step. You have to put money towards that because this fund will be your safety net during unexpected financial emergencies, reducing the need to rely on credit cards or loans.

In the event of a financial emergency, prioritize essential expenses. The three most important ones are housing, utilities, and food. Temporarily pause or adjust non-essential expenses until you regain stability.

If you find yourself in a difficult financial situation, don’t hesitate to seek assistance from local community resources, nonprofit organizations, or government programs that can provide temporary relief or guidance.


Budgeting, especially on a low income, is extremely tough but crucial for achieving financial stability and reaching your long-term goals. By maximizing limited resources, avoiding debt, and prioritizing essential expenses, budgeting allows you to know everything about your money and build a secure financial future. Careful analysis of income and expenses, differentiation between needs and wants, and practical budget creation are important.

All in all, it’s actually quite simple. Reduce your expenses, increase your income, track your spending, and have a minimal life to keep track of your money on low income.


How do I save money on low income?

Take control of your spending. Know how much you are spending, how much you are making, and how many percentages of your spending you can cut. Focus on cutting your expenses first and then increasing your income.

How do you survive on a low income budget?

You have to budget your income. Know your spending and income and balance it out.

What is the 50 30 20 rule of money?

The 50-30-20 rule is using 50% of your money towards your needs, 30% of it for wants, and 20% for savings.

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