How To Budget Money on a Low Income

When Robyn and I first moved out on our own, we both worked part-time dead end jobs. We barely scraped by living in a 2 bedroom apartment with a roommate. To say we were on a low income would be an understatement. Why? Because we didn’t know how to budget our money.

A budget allowed us to gain control of our unchecked spending habits such as eating out, coffee shops and pointless stuff we couldn’t actually afford. In just one short month, we went from saving $0 and living paycheck to paycheck, to saving nearly $500 every month.

Clearly, you don’t have to make a lot of money to have a budget. On the contrary, learning how to budget on a low income is the most critical time to start. We did it on nearly nothing, and it saved our financial future and it will do the same for you.

We don’t want to live in debt, and you don’t have to either! Read about how we live a (mostly) debt free life. Trust me, it’s easier than it sounds.

Why you need a budget

OK, I got a little ahead of myself, before we start, we need to know why we’re doing something before we do it (if only I took that advice before downing a Vodka and Red Bull).

Think of it like this, going through life without a budget is like driving down an old dusty road full of potholes, rocks and fallen trees. It’s going to be bumpy, stressful, and at some point, you’re going to blow a tire. By creating a budget, you’ll be laying the pavement to drive a safe and stress-free financial future.

The first step to financial independence and breaking out of the low income treadmill, is learning how to budget.

What you’ll need to make a budget

First things first, of course. Before we can make a budget, we’ll need some information to work with! Don’t worry, we’ll go through each of these one at a time.

  • Net Income (income after taxes)
  • Fixed costs (expenses that stay the same)
  • Living expenses
  • Quality of life expenses (expenses that change)

On top of gathering all this boring stuff, we’re going to need somewhere to put it all. Luckily, there’s plenty of super easy ways to do this. In fact, Google is so hopeful that they made their own template for how to make a budget. If you want to use your own, just open up Google Sheets and click the “Monthly Budget” template at the top. That’s it!

Don’t like google? Use whatever works for you! Heck, you can even use sticky notes if you want to. Just make sure it’s something you can save and go back to in the future. And no, keeping track of it “in your head” isn’t a record we can count on.

This all sounds like a lot, but trust me, it’s easier than it looks. We’ll break it down step by step and show you how simple it actually is.

Net Income

illustration of a sack of money

Alright, since this is a guide and all, let’s start with the easiest one first shall we? We’re going to need your net monthly income. This is what you’ve made after the taxman takes half of your paycheck. A pay stub works well for this, or your W2.

Hey, look at the bright side. Having a low income just means less expenses you need to keep track of for your budget!

Fixed Costs

illustration of a house

Next on our list, we need to figure out what your fixed costs are. A fixed cost is exactly how it sounds, your monthly expenses that won’t change.

Fixed costs are important because we want to know exactly how much you’re spending every month. Keep in mind, the more accurate your numbers are, the better your budget will be.

Here’s a list of what most people have for fixed costs:

  • Monthly bills that don’t change (garbage, internet, TV, phones)
  • Debts (student loans, car payments, etc…)
  • Home Mortgage/Rent

Jot down all of your fixed costs so we can go back to them.

Necessary living expenses

illustration of a grocery bag full of food

Next up, we need to know what it costs to live. Sounds ominous, doesn’t it?

Understanding your cost of living is important because it lets you know what matters most in your budget.

Sure, you can probably spend less at the grocery store, or use less AC in the summer, but for the most part though, these costs are necessary to survive.

The cost of living (for you, your family and your pets) will include:

  • Groceries (no, eating out doesn’t count)
  • Utilities
  • Household Goods

Same as before, write down all of your living expenses.

Your quality of life expenses

illustration of a summer hat with a sunflower on it

So, you’ve figured out what your cost of living and fixed spending is (and now you’re probably a little depressed). It’s time for the fun stuff, what you spend on the things that make your life more enjoyable.

Your quality of life expenses are the things you spend money on like eating out, new clothes and hobbies. Try your best to get a rough estimate, even if your expenses change month to month. By knowing how much you’re spending, and where you’re spending it, we can find opportunities to save money. 

Be honest here! The whole purpose of learning how to budget is figuring out ways we can still do the things we enjoy.


You’ll need one month’s records of:

  • Total monthly income
  • Fixed costs
  • Living expenses
  • Quality of life expenses

Let’s start building a budget

Think of your budget like cooking a healthy meal. Do you slap a steak down on the plate and call it good? No! (OK, sometimes) Whether it’s food or finances, variety and moderation are key to a healthy life. With that said, it’s time to make some decisions on what we want on our plate.

Create some categories for your budget

An illustrated list of finances, put into categories, showing to allocate a budget

First, we need to lay out the floor plan. Much like the example above, you’ll need to create separate sections for your fixed, living, and quality of life expenses.

Within the sections you’ve made, it’s time to lay out some specific categories for where your money is being spent. Basically, if you’re spending money on something – write it down!


Make sure to write down every expense you’ve made for the month and put them all in specific categories. It wouldn’t be a very good budget if we had loose money floating around, would it? This area will show you where all of your money is going, and give you an idea of where we can skim from.

It’s important that every dollar is accounted for!


Next, we’ll need the important one – your savings. This is where you’ll likely spend a good chunk of time on, as it’s the “planning” section of your budget. That being said, don’t start throwing down a brand new car and a new home just yet.

We need to work in baby steps!

First and foremost, your emergency savings. Your emergency savings is the single most critical part of your budget, as it will protect you from any financial pitfalls to come. By expecting the unexpected, you’ll never have to eat into your vacation fund just to cover a sprained ankle.

With that in mind, don’t go tossing all of your spare money into it. You can spread the love around a little bit and save for things you enjoy. Just don’t go overboard!

Making smart choices with your budget

Everyone’s budget is going to look a little different, and that’s a good thing. With that said, it’s time for you to make some choices about what really matters.

Do you find that you’re spending $100 in coffee every month? Maybe cut that down to $50, and start putting the rest towards buying a new car. If you’re truly living on a low income, prioritize the things that will greatly change your life for the better.

Take a hard look at what your grocery spending is, or unnecessary bills. Do we really need a $100 cable TV bill, when Netflix exists? Probably not! But that’s your choice, you pick what’s best for you.

Remember, the goal of your budget isn’t to eliminate the things you enjoy. It’s job is to balance out what you’re buying now, so that you can have something better in the future. On top of that, you’re protected from any financial curve balls thrown your way.


Most finance gurus recommend you spend no more than 30% of your income on housing, and around 20% for living expenses (groceries, bills, etc…), totaling around 50%. This is being rather optimistic, the reality is most families are looking at living expenses + housing at around 70% to 80%.

With that in mind, think about what you enjoy doing right now, what your goals are, and where you want to end up.

With that in mind, here’s a few questions to ask yourself about your budget.

  • What do you enjoy doing right now?
  • What are your long-term and short-term goals?
  • Where do you want to be in 5 years?

Save a little for the here and now, and for some down the road. You want a good balance between enjoying life, and growing your future. Create sections for buying a new home, hobbies, going out to eat, investments, your kid’s college fund.

Anything you’d like to afford now, or in the future, make a category for it.

Your goal here is to have a plan for where your money is going every step of the way. With a little planning, your budget will be the guiding light towards achieving your milestones and building a better future for yourself.

This simple process is how you succeed at making a healthy, hearty budget… without giving up delicious cookies.

Saving is important

illustration of a small island with a palm tree on it

If I had to summarize why you need a budget down to one word, what would it be? Savings.

With your budget in hand, you’ll have a plan to pay off your debts and buy the things you want without sacrificing the things you need.

The issue many people run into when they think about savings, is that they view it as a restraint, shackling them from the things they love. They bundle a little spare money into a pile, and proclaim “this is my savings”.

Well, that’s not very helpful, and makes it feel like we’ve given up everything, to gain nothing in return. With that said, I know we can do better.

Think of your savings as the freedom to do what you love, not a prison to stop you from doing it.


Your budget is the foundation in which to build everything with your money. We can’t make any important decisions about our money, without knowing how much we have, where it’s going, and a plan for what it’s doing. All it takes is an hour or two out of 1 day to create a budget. That 1 simple hour can end up saving you thousands of dollars in the future. 

We want your money to be a tool working for you, not a game of tug-of-war battling against you.

Creating a budget is just the first step towards financial independence. Next, learn how to use your credit card the right way!

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