How to Budget When You’re Living Paycheck-to-Paycheck

How to Budget When You’re Living Paycheck-to-Paycheck

Whether you’re supporting a family while working a full-time job or simply spending a bit too much on nights out, waiting for the next paycheck to roll around just to pay the bills is never a great position to be in. And while it might feel like a burden, living paycheck-to-paycheck doesn’t have to mean much in regard to your overall financial outlook. Instead, it only means that your current expenses and earnings are practically equal and that you’re unable to put some of your money into savings.

By creating a monthly budget, you can give yourself the chance to step back and assess your financial habits with the aim of reducing your expenses. Once you’ve taken a close look, you can start planning for the future and eventually stop living paycheck-to-paycheck. Here’s a quick look at the steps you should take if you’re looking to create a budget while living paycheck-to-paycheck:

Calculate Earnings & Expenses

There’s a good bit of raw data that’s necessary before you can start assembling a budget. Over the course of a calendar month, take note of every single expense–from the electric bill to that muffin you bought at the café–so that you can later see where your money is actually going. To make it as easy as possible, try connecting your bank account and credit cards up to an app like Mint, which keeps track of your spending, and notate all of your cash transactions by hand. At the end of the month, create a complete list of your expenses by splitting them up into categories that help you evaluate where your money is going.

Meanwhile, it’s just as important that you figure out exactly how much you’re earning over the course of the month. This should be relatively easy for anyone working a regular 9-5, since their hours and salary are consistent, but citizens of the gig economy might have a tougher time coming up with an estimate that reflects every month’s earnings. In either case, you should try your best to thoroughly calculate your monthly earnings. Once you’ve done this, you’ll have all of the information you need to start budgeting.

Create a Monthly Budget

Now that you’ve assembled your data, you should take a look at your monthly income–this is the amount of money that you’re able to spend every month without putting yourself into debt. Most budgets divide income into three essential spending categories: Needs, Wants and Savings.

  • Your Needs should account for 50% of your income, and include the most essential living expenses, like housing, groceries and transportation.
  • Your Wants, which include expenses like eating out, entertainment and trips, should only take up 30% of your income.
  • Your Savings are the whole purpose of your budget, and should amount to 15-20% of your monthly earnings. If you’re consistently putting this much into a savings account and building up a rainy day fund, you’ll achieve a much greater financial security within 12 months.

Make Adjustments

The ultimate aim of creating a budget is to reduce expenses so that you can save money for the future and quit living paycheck-to-paycheck. While putting your budget together, you’ll have to identify where those savings will come from. Which of your monthly expenses can you either eliminate or reduce so that you’ll have some money to set aside? You’ll first want to take a look at anything that falls under your Wants category, and consider how you can cut back–perhaps you’re spending too much at restaurants or on new clothes. If it’s hard for you to cut back on expenses, you might also want to consider taking up a side gig or two in order to increase your monthly income.

After creating your budget, your first three months will serve as a trial-and-error period. Don’t feel discouraged if the expectations you’ve made for yourself don’t match your first months of spending: seasonal expenses like holiday shopping and unexpected ones like friends’ weddings make budgeting a difficult task. What matters is that you continue to keep track of your spending and use your budget as a tool to plan for your financial future. The internet has lots of great tips for saving, and we recommend you check out this article to find the best financial advice out there. Once you’ve done your research and start putting enough in savings, you should have no trouble paying your bills while your account balance goes up.

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