Latest posts by Kumiko Ehrmantraut (see all)
- How to Live Within Your Means Without FOMO - October 29, 2020
Having a plan for your money is the most important key to reaching your financial goals. Want to pay down your debt? Need to build an emergency fund to draw on when unexpected expenses come up? Maybe you just want to break the stressful, unending cycle of working hard only to live from paycheck to paycheck.
Here’s the great news. You — yes, you — can accomplish all of these things. It all starts with creating a smart budget that works.
If you’re throwing up a mental wall right now because you read the word “budget,” stick with me. A budget can help you even when money is tight.
The budgeting process you need to follow to get ahead on your financial goals is the same no matter how much income you earn. It’s the same no matter how much debt you’re in currently or what savings goals you’ve set for yourself. The differences come in the customization.
Why You Need a Budget When Money Is Tight
The idea of budgeting when money is tight can feel overwhelming. You’re already under a ton of financial pressure. The thought restricting your spending even more probably feels like the last thing you want to do.
But a good budget isn’t about restriction or doing without. It’s about freedom. A well-planned budget can help you afford the things that matter most to you.
Where to Start When You Live Paycheck to Paycheck
The money principles you need to follow to live a financially free life are the same regardless of the size of your paycheck. But let’s take a moment to be real.
Trying to budget when you live paycheck to paycheck can be hard. If you’re currently in this stressful situation, you have only two real options to change your circumstances.
You can increase your income.
At this moment in time, you’re restricted by your income limits. That doesn’t mean you’re restricted to stay at the same income level forever.
Everyone has the potential to earn extra money. What you have to ask yourself is if you’re willing to make the changes to your life that earning more money will require.
Let’s say you get a second job or pick up some side hustles to earn more money. Either choice requires sacrifice. Most likely, you’ll have to give up time doing something else you need or want to do to make the time to earn extra cash.
You can decrease your spending and expenses.
The second option you can explore to improve your finances is to decrease your spending. Honestly, this is where most people need to start.
Keep in mind, you can only cut spending so much. You’ll still need the necessities like food, shelter, and clothing. However, even if your income is tight, there are often ways to find hidden money in your budget. You may also consider downloading some money saving apps like Ibotta (for groceries) and Rakuten (for clothing).
Below, I’ll go over a few steps that can help you gain more control of your money. Spoiler alert: It all starts with tracking your spending.
Step #1: Track Your Spending
The best thing you can do when it comes to your cutting costs is to track your spending. This is true whether you’re currently living paycheck to paycheck or you have extra money left over at the end of the month.
If you want any budgeting program to succeed, you have to figure out where you’ve been spending your money. Skip this step, and your budget will fail — plain and simple.
When you track your spending, it’s eye-opening. It helps you see when and where you’re participating in careless or mindless spending (something we all do if we’re not careful). But once you identify careless and mindless spending, you can redirect that money toward the things you really want (aka your financial goals).
Until you have full awareness of where every dollar you earn is going, you can’t make the meaningful changes you need to make when it comes to your financial plan.
These Monthly Expense Tracker Printables can help.
Step #2: Create Your Expense List
Next, list out your regular bills. When I first started budgeting, I didn’t have enough left over for groceries, let alone to pay down debt. So, I asked myself the following questions about every bill:
- Do I need it?
- Is there a way to lower the cost?
Cut the bills you can and, if possible, decrease the bills you can’t cut altogether. If you’ve signed up for a monthly subscription to something, include those bills here.
Step #3: Cut Your Variable Spending
Once you’ve completed step one and have tracked your spending for a whole month (and ideally more), you should have a list of your areas for variable spending. These expenses might include:
- Eating Out/Coffee Shops
- Clothing
- Entertainment/Fun
- Coffee
Here’s one word of caution. Don’t restrict your spending so much that you set yourself up for failure. If you’re spending $100 per month eating out, consider cutting it in half to $50 instead of wiping that number out to $0.
Being aware of the things you can change with your spending is the goal here. You can’t do that until you know where your money is going in the first place.
Making the Choice
Either option — decreasing spending or increasing income — can work to help you create extra money in your budget. But it all starts with a choice.
Are you going to try to cut spending and expenses? Do you think increasing your income will be a better fit?
If you truly don’t have any money left over after paying your essential bills (housing, transportation, food, etc.) and existing debts, increasing your income may be the best choice. However, most people can benefit from taking control of their spending as well.
For others, some combination of the two strategies combined works best.
Bottom Line
No matter what financial situation you’re in currently, there’s a way to make it better. But improving your finances requires change.
Change isn’t usually comfortable.
Financial change, in particular, requires hard work, dedication, and a whole lot of determination. Plus, you may be faced with financial challenges that make the process harder or slower to get started.
The timeline to reach your financial goals might look completely different than the next person’s journey. However, the same underlying rules still apply. If you draw up a solid plan, commit to it, and don’t quit, you can absolutely improve your financial situation for the better.
Thank you for all you do! You have not only encouraged me by making budgeting less intimidating, something I can actually open up everyday and feel like I know what I’m doing, but seeing your growth as a business woman has encouraged me to look into my own life and find how I can be of value doing what I love. Your system is the only one that makes sense and works for me! I have two jobs both with inconsistent income and bi weekly paychecks. Your breakdown has made me feel powerful and even like a kid playing a game with my money. The breakdown is so simple and I made my own fancy sinking fund envelopes that I love to open and put money in (even if it is just 5 bucks each paycheck). I printed the workbook this time around but 2020 is getting the already made one, already got my sinking funds.
Thanks again for making money manageable and even fun!
Stephanie Michelle
On paper I have enough money to put money in cash envelopes and cover my expenses. But in reality, I can’t ever put money in envelopes bc I’m usually floating money from one paycheck to the next to cover expenses. For example, the 1st I’m always short bc my large expenses are due and the 15th I usually have extra funds but I’m playing catch up from the 1st. So what do I do when I live paycheck to paycheck, already have a second job, have cut all extraneous expenses but can’t seem to get on track with a budget bc I never have enough money to put into envelopes to cover my expenses?? Help!! 😩 I truly feel like I’m in a hamster wheel and I’m exhausted