Saving & Budgeting Tips for Low-Income Families
Keeping your family on budget can grant more freedom than you might think.
When your income is limited, having a household budget is not only a good idea; it is imperative. Living on a budget might sound restricting or like too much work. However, having a workable family budget is actually quite liberating and simple. It puts you in charge of your money, rather than allowing money to control your life.
Track Your Expenses
Before you can create a workable household budget you have to know where your money is going. Certified Public Accountant Mark Noel recommends tracking family spending for at least a month to six weeks before you start working on a budget. "As inconvenient as it sounds, every member of the family should get a receipt for everything, and I mean everything, they purchase," he says. Use those receipts to get a clear picture of how and where you spend your money. Using personal finance tracking software can help you track expenditures: you might find some obvious expenses you can cut right away.
Create a Budget
"Implementing a workable budget is the single most important thing a low-income family can do to get control their money," Noel shares. Getting input from each member of the family will help keep you from leaving out budget items. "Because every member of your family will be affected by your family budget, creating that budget should be a family affair. Having extra sets of eyes on your budget always helps," Noel adds. If everyone has a say in creating the budget, they are more likely to buy into maintaining the budget.
Budget for Sufficiency
The key is making your household budget work is ensuring it is sufficient for your needs. For example, if you need $200 per month for food, but you only budget $125, your budget won't work. You'll end up taking $75 from some other budget category to spend on food which will make that category short, so you'll take from a different category to fill that need. It becomes a vicious cycle. This is the time in the budgeting process when you might have to make some tough decisions, particularly if your income isn't sufficient to meet all of your needs, much less your wants.
If your budgeted expenses exceed your income, you need to make some adjustments. You only have two options: cut your expenses or increase your income. Increasing your income might not be an option and cutting your expenses could take some time. For example, you might discover you don't earn enough money to support the amount you're paying in rent. You might need to find a cheaper home or apartment but breaking your lease is expensive, so you might be better off moving after your lease is up. You might need to sell your gas-guzzler and buy a more fuel-efficient car.
Conventional wisdom says you need three to six months' worth of living expenses saved up for a rainy day. When you live on a low income, everyday is a rainy day, so saving that kind of money might seem unrealistic. But unexpected expenses come up in everyone's lives -- regardless of income level -- and having a few hundred dollars in an emergency fund can meet those needs without wrecking your budget and forcing you into difficult choices. Noel suggests making your emergency fund a top priority, right after creating your budget.