A Realistic Guide for Budgeting on a Low Income

In 2023, 78% of Americans reported living paycheck to paycheck. That means more than three-quarters of Americans struggle to save or invest after paying for their monthly expenses.¹ 

Life isn’t easy when you’re balancing a full-time job, raising kids, and trying to make ends meet on a low income. When you throw in a highly competitive job market and sky-high inflation, it can feel impossible. Maybe you’ve tried budgeting before but felt overwhelmed with bills piling up and not enough cash to go around. You’re not alone – but there are things you can do to gain control of your finances and build a brighter future for your family. 

In this guide, I’ll lead you through assessing your financial situation, setting realistic goals, and managing debt responsibly. You’ll also glean tips for maximizing your income, creating a budget, and saving money on a low-income. 

Understanding Your Financial Situation

If you have a low income, it will take discipline and consistency to save money – but it will be worth the extra effort. Creating a realistic budget on a low income begins with understanding your financial situation. Start by listing out on your income; in order to know how much money you’re working with, you must know how much you’re bringing in. Write down all sources of income including your salary, part-time work, side hustles, government assistance, etc. If you have an irregular income, like a server or a realtor, use your lowest monthly take-home pay to start. 

Next, list all your monthly expenses, such as rent, utilities, transportation, groceries, debt payments, etc. all the way down to your Dunkin’ runs. You can use a bank or credit card statement to make this easier. This step will help you get a better idea of where your money is going. You might be surprised by how much you’re spending in some categories or delighted that you’re being more frugal than you originally anticipated.

Tracking your spending habits is essential to understand where your money is going. Keep a record of all your daily expenses, including small purchases, for at least a month. This will help you identify areas where you can cut back or make adjustments. Try the Budgeting Tools within your SouthState mobile app to easily track your monthly spending.

Setting Realistic Financial Goals

When it comes to managing your finances on a low income, setting realistic goals can help you stay on track. Your goals should be challenging, measurable, and within reach. It helps to separate your goals into two categories: short-term goals and long-term. 

Short-term goals are those that you aim to achieve within a year or less. Think of goals like setting aside a certain amount of money for your emergency fund, paying off high-interest debt, or saving for a specific purchase. 

Long-term goals, on the other hand, are those that you plan to achieve over a period of several years, such as buying a house, saving for retirement, or funding your children’s education.

When you have a limited income, it’s important to prioritize your financial goals. You don’t have to boil the ocean; start small and determine which goals are most important to you.

Creating a timeline for achieving your goals can keep you on track and monitor your progress. Break down each goal into smaller, manageable steps, and assign a realistic timeframe for each step. This will help you stay motivated and accountable. 

Creating a Budget Plan

Personal budgeting is all about intentional money management; it’s a proactive plan that tells each dollar where to go each month. After you’ve listed out your income and expenses, it’s time to start planning.

Start With the Essentials

Here’s where you separate your wants from your needs. The first items your paycheck should cover are savings, groceries, housing payment, utilities, and transportation. 

You might be wondering why you’re saving up front rather than at the end – it’s because if you have the mentality of saving what’s leftover, nine times out of ten, you don’t save at all. The Pay Yourself First method suggests you should take the first 10% of your paycheck and put it into your savings account. If 10 percent isn’t doable, take baby steps. Just start somewhere; remember, this should be challenging but not totally out of reach.

Subtract the sum of your essential expenses from your starting amount (total monthly income). This will ensure that your basic needs are met and help you avoid unnecessary financial stress.

Next, account for expenses like childcare, insurance, and debt payments in your budget. You also should allocate extra money for random expenses that pop up – because there’s always something. A new set of tires, a trip to the urgent care, a vet bill, new soccer cleats – something. You don’t need to know the exact dollar amount to account for miscellaneous expenses, just make sure you have a little bit of money for things that may pop up. 

Plan for the ‘Nice to Haves’

After you’ve subtracted your essential expenses and savings from your monthly income, you may have extra wiggle room in your budget for entertainment, dining out, subscriptions, etc. The key here is to stay at or under budget, so you may have to prioritize and cut back in some areas if you’re over the limit. 

Here are a few suggestions for cutting down on expenses:
 

• Cook at home and pack your lunch rather than eating out
• Cancel unnecessary subscriptions: streaming, clothing, meal delivery, Amazon, etc.
• Meal prep to save on groceries
• Get creative with low-cost or free weekend activities
• Challenge yourself to a no-spend month

Cutting back on these discretionary expenses can free up more money to allocate towards essential expenses or savings. Establishing a savings plan is vital, regardless of your income level. Start by setting a realistic savings goal and determine how much you can afford to save each month. Even if it's a small amount, consistent savings can help you build an emergency fund or work towards future financial goals. Consider opening a savings account and set up automatic transfers to make saving easier and more convenient.

Maximizing Your Income

When you’re surviving on a low income, it can be challenging to make ends meet, much less save money. That’s why stretching every dollar and maximizing your income is so important – you must make the most of your earnings. 

Take on a Side Gig

One way to increase your income is by exploring additional opportunities to make money. Consider taking on a part-time job or freelancing in your spare time. Online platforms offer various opportunities to earn extra money, such as freelance writing, graphic design, or virtual assistance. 

If freelancing isn’t your thing, explore the possibility of starting a side hustle. House cleaning services, lawn care, pet sitting, and selling homemade baked goods are all ideas for generating extra money. By diversifying your income streams, you can increase your income and have more funds available for budgeting.

Shop Around for the Best Deals

Negotiating bills can be a hassle – but it can be worth your time. Contact your service providers, such as utilities, internet, and insurance companies, and inquire about any available discounts or lower-priced plans. If they don’t offer discounts or lower-priced plans, shop around at their competitors. You may be able to score a new customer promotional discount for a set amount of time, lowering your monthly expenses. 

Pay Off Your Debt

Paying off your debt should be at the top of your priority list when you’re working with a low-income. The sooner you pay off your debt, the sooner you have more money in your pocket. Not only does eliminating debt increase your cash flow and reduce financial stress, but it also improves your credit score, which can allow you to receive more favorable rates in the future when you’d like to purchase a home or start a business.  

If you find yourself overwhelmed or unsure about how to handle your debt, don't hesitate to seek professional advice. Financial advisors and credit counselors can provide valuable guidance on debt management and help you develop a personalized plan. They can also negotiate with creditors on your behalf, potentially securing lower interest rates or more favorable repayment terms.

Avoiding unnecessary debt is another crucial aspect of maximizing your income. It's tempting to rely on credit cards or loans to cover expenses, but this can lead to a cycle of debt that becomes difficult to break. Instead, focus on living within your means and only borrowing when absolutely necessary. 

Building an Emergency Fund

When you’re surviving on a low income, an emergency fund is invaluable. Having a financial safety net can provide peace of mind and protect you from unexpected expenses. Life is full of uncertainties, and having funds set aside specifically for emergencies can help you navigate through difficult times without relying on credit cards or loans. 

Ideally, an emergency fund should equal about 3 to 6 months of household living expenses; however, you don’t have to get there overnight. Start out by automatically contributing to your emergency fund each paycheck and increase your contribution as you become more comfortable. If you get paid every two weeks, and you can save $50 a paycheck, you will have saved $1,300 by the end of the year. 

Building an emergency fund takes time and discipline. Start small, be consistent, and gradually increase your savings as your income grows. 

By prioritizing your financial well-being and making conscious choices, you can create a realistic budget, build a strong emergency fund, and work towards creating a brighter financial future. Open a savings account online or visit a branch near you to get started today.

About the Author, Krissy Williams: Krissy Williams, Branch Manager at the SouthState Whitemarsh Island location, graduated from Georgia Southern University in 2006 with a bachelor’s degree in finance. She started her career in banking fresh out of college with First National Bank. Throughout her career she experienced closures and mergers, but she stayed with the same company – now SouthState – all along. Her favorite part of her job is getting to know her customers and helping them become knowledgeable about their finances.

¹Majority of Americans Live Paycheck To Paycheck – Forbes Advisor