Learn how to budget when you’re broke with this practical step-by-step survival guide. Discover simple budgeting methods, expense-cutting strategies, and tips to regain control of your finances.
How to Budget When You’re Broke: A Simple Step-by-Step Survival Guide
Introduction
Typical budgeting advice assumes you’ll have some amount of cash leftover at the end of the month. But what if your income just barely covers your rent, or if you are unemployed, or even if every paycheck completely disappears by the time your next one arrives?
Budgeting when you have no money starts with survival math. Know where every single one of your dollars goes, decide which bills to pay (and in which order), and build the base for improving your financial situation.
The purpose of this guide is to provide step by step instructions on how to create a budget when you’re broke. There will not be any additional information or assumptions regarding extra income or expenses that require money you currently do not have.
Before you even start building a budget, you first need to acknowledge the hard reality that a Budget does not make money for you. It simply helps you to arrange the way you have that funds to make it work for you at the fullest capacity.
Some of the thing this guide is based on and will assume:
• You have little or no income, regular income or no income at all currently.
• Your expenses can be more than you make.
• You want an actual “Plan” instead of “Motivational Quote”.
A spreadsheet application, a financial advisor, or a debt-free emergency fund is not needed to get started. The only items needed are a pen, a piece of paper, and your openness of mind.
STEP 1: Determine Your Total Monthly Income
List down each and every dollar that you will receive within the current month. The list will include the following items;
Wages or salaried income (after deductions for taxes)
Income from freelancing work or gig tasks
Government-provided financial payments or assistance
Child support payments or court ordered alimony payments
Money you may have borrowed from Family members
Any other side hustle income you have earned
If you have a fluctuating income, look back at your previous three monthly periods to determine the lowest monthly earning you received during that period. This is your baseline. When budgeting, do not base your budget on what you anticipate earning; base your budget off what you consistently earn.
For example: Maria works part time and earns between $800 and $1,100 each month. She has chosen to use $800 as her Budgeting Baseline, so she does not overspend in months that are slow for her business.
Step 2: List Out All Of Your Expenses
Document every purchase made and refrain from either filtering or evaluating the purchase at this stage. Simply document every expenditure made.
Allocate the cost of your purchases to two separate categories;
“Fixed Expenses”, i.e. those costs that remain constant from one month to the next and include such things as:
Rent or Mortgage
Car Payment
Insurance payments
Telephone Bill
Subscription services
“Variable Expenses”, i.e. those expenses that vary from one month to the next and can include items such as:
Food
Gas/Transportation
Utilities
Co-pays for medical services rendered
Household supplies
Utilize your prior two months records of cost transactions, (i.e. bank statements or credit card receipts), as it has been determined that individuals underestimate their actual cost of purchases by 20%-30% when they attempt to estimate from memory.
Step 3: Separate Needs from Wants
With limited funds available, you might not be able to cover all the items listed in your expenses. It is important to be truthful in recording your spending habits and determining which are necessary and which are discretionary. Some of the items listed as necessary would include housing, food, utilities, transportation to work, and medication. Discretionary spending items would include entertainment, dining out, purchasing new clothing, alcohol, and gaming applications. This Step is not intended to pass judgment on you, but rather assist you in identifying your essential needs, which you should procure first, prior to fulfilling your discretionary wants. If you are unable to procure all of your essential needs, you should continue to Step 4.
Step 4: do survival math
Calculate the difference between the total of all your expenses and your income.
Income minus Expenses = Budget Gap.
There are three possible ways that this could turn out.
Outcome A is when you break even, which is good. Now you need to protect your break-even and look for opportunities to create a small cushion.
Outcome B is when you have surplus money left over. This extra cash should go first to pay for an unpaid bill, or be put into a small emergency fund.
Outcome C is when you are in a deficit position, which means that your total expenses are greater than your total income. It will be more common for people who are struggling financially to find themselves in this situation (deficit), which is what most of the rest of this guide will concentrate on.
Step 5: Cutting Expenses First
When in deficit, you must basically do one or both things — cut expenses, increase income. Basically most likely, both. I’d start with quick cuts, such as the following:
The subscriptions you can immediately cut:
Streaming platforms (you’re hardly ever using)
Gym memberships
App subscriptions
Premium levels of news/other services
Monthly savings if you cut three streaming services: $45-$60
I recommend calling your providers (phone company/internet company/insurance company) and asking if there is a lower cost plan available to you than what the currently offer. Many of the providers have hardship plans or very low-cost plans available to people who qualify, but they don’t advertise those plans. Ask directly, “Is there a plan available that’s less expensive and for people who are in a financial hardship?”
Step 6: Arrange your bills in the Proper Sequence
It is very expensive and easy to make mistakes when you pay the first bill. If you cannot pay all your bills, it is important that you pay them in the following order:
(1) Housing. Eviction or foreclosure are two of the hardest bills to recover from.
(2) Utilities. Power and water are necessary to maintain your health
(3) Food. Use food banks, SNAP, or any other community resources, if needed
(4) Transportation to work. Losing employment makes it harder for you to pay everything else,
(5) Medication/Health needs
(6) Phone. Needed to look for jobs as well as for emergency needs.
Car Insurance: Mandated by law in most areas of the United States.
Credit Cards/Personal Loans: Can negatively impact your credit, but not your safety.
The list of items above are NOT intended to be interpreted as financial advice or to encourage you to default on any loans or debt. Instead, it is meant to serve as a survival tool. There are several “hardship” programs available through Credit Card Companies and are more common than with Landlords and typically not available after the Eviction Process has started.
Zero Based Budgeting (Step 7) is when you assign a “job” to every single dollar you earn (or expect to earn) during the month or budget period. The idea is: Income – Expenses = $0
Just because it does mean you spend everything at your disposal, but all dollars are being assigned towards savings, debt and buffer accounts. There is nothing left over for you to spend without thought or consideration.
Here is an Example Zero-Based Budget for $900/month income:
Rent: $450
Utilities: $80
Groceries: $120
Transportation: $60
Phone: $40
Household supplies: $20
Emergency micro-savings: $25
Clothing/ personal: $15
Total: $810
You would have assigned/ nothing leftover to spend on with out thought or consideration.
Each dollar is given a title prior to the start of the month.
Step 8: Start with Creating Micro Emergency Funds
Most financial experts will typically advise that you create emergency funds enough to cover three-six months’ worth of your living expenses. However, if you are facing financial struggles, you will not be able to successfully follow that advice. This is why you need to begin small.
Try to set aside $10 per week if you can. Your goal can be either $100 or $200 in total.
As little as that amount is, it may be just enough to help avert a financial disaster. A flat tire or a prescription can completely wipe out your money for the month. This money is not meant for your retirement; it should give you a few financial cushions to fall back on.
Storage location. Set up a separate savings account, create a cash envelope, or use an app as a separate account; as long as it is separate from the money you use to make purchases.
Step 9: Find an Additional Source of Income.
Reducing what you spend often leads to minimal results. Small increases in your income alter your finances drastically.
Some low and quick ways to earn a few extra bucks:
Unused items. Sell them on either Facebook Marketplace or on eBay.
Yard work, cleaning, pet sitting, childcare.
Gig work: Deliver food, pick up groceries, do chores using “apps”
One can sell their skills e.g., sell your writing, graphic design, data entry skills on freelance websites.
Return items you purchased and didn’t use to get cash back
For example, by making $150 a month doing gig work for 2 weekends a month, you turned your $50 expenses into $100 in monthly income; so, just a swing of $150 a month from a deficit to a surplus and could use that to fund your mini-emergency fund in two months.
Comparative Table: Most Common Budgeting Methods Used in Low Income
Budgeting Method | Ideal For | Needed | Level of Difficulty
Zero-Based Budget: You know where your money is being spent. Requires calculations and self-discipline. Medium
Cash Envelope System: To control your spending by categories using cash, envelopes and cash. Low
50/30/20 Rule: For people who have a steady income and enough income to divide up the way the rule says to. High (not practical when broke)
Bare Bones Budget: For emergency or “survival” situations. You just need paper and pen to complete it. Low
Pay Yourself First: To create saving habits. Any excess income is available. Medium
When you have no money, use either a bare-bones or a zero-based budget. The 50/30/20 budget rule requires you to have enough money to spend 30% of your income on your wants but you may not have enough money to use that rule now.
Practical tips you can use to help you stick to your budget
Check your budget weekly (rather than monthly), because if you do it weekly, it will be easier to find mistakes or problems, and you can fix them right away.
Use free tools that help you track, like Google Sheets, EveryDollar (free), or paper.
Cook at home with inexpensive and healthy foods (like eggs, rice, beans, oats, frozen veggies, etc.)
Take advantage of free library resources which include Internet access, job resources, and books.
Check out local programs that provide help, for instance, food banks, basic needs like electricity, and free clinic services.
Do not take out payday loans because of their high interests, which will make your financial situation even worse.
Share your budget with someone that you trust to help keep yourself accountable.
Selecting a Suitable Budgeting Alternative
Should your current income be either zero or negative, the first step in developing and implementing an effective budget would be to focus exclusively on obtaining emergency assistance (food banks, rent assistance, community programs, etc.) prior to establishing a budget. There can be no budgeting when there is no money available.
If you are receiving some income but are not certain of your monthly income, use the month with the least income as your base amount. You may use any amount above that base amount as an additional amount you can use to pay down debt or add to savings.
If you’re earning enough to cover your needs and basics each month, but aren’t making much more than that, you can use a barebones budget. By doing this, you are covering only your basics until you can build upon that base over the next 3-6 months.
When you suddenly lose your job, the best thing you can do is cut out all discretionary spending immediately, talk with lenders about any hardship programs, and apply for any assistance available. From there, you should create another budget that reflects the new income situation.
Also, note that your budget should be based on your actual income, not your ideal income.
Listing all your expenses accurately is the way to ensure you set up a proper budget. Your primary concerns should be your home, food, utilities, and the means by which you get to and from work. Assign each dollar a specific job utilizing zero-based budgeting. To put it succinctly, if you are earning no money at all then making even a cent can completely alter your financial picture! Once you have created this budget, check it weekly to make sure that you are on track with your goals and don’t beat yourself up if you need to make changes.
FAQ’s
How do I create a budget with no income?
No Budget when you have no Income rather it’s crucial to focus on immediate/ emergency resources first instead. Please apply for unemployment and assistance through your local food bank and use 211 or Community Assistance Programs and Churches and/or Charitable Organizations along with any other Resources available to you in your area. When you start earning any type of income (even small amounts) your first financial tool should be a simple / basic budget.
What are the best ways to budget when you have basically nothing?
The two budgets should be used, i.e., the zero-based budget and the bare bones budget. They give you the numbers to deal with without imagining anything. Do not use the complex budget methods if your source of income is not stable.
Should I pay off debts or save while I am broke?
The first thing that you need to do is build a small emergency fund of about $100-$200. If you do not possess an emergency fund, an unexpected expense can push you back to borrowing;. Once you’ve made contact with creditors to arrange for hardship payment plans, you’ll be making the minimum payments and increasing your income.
What if I spend more money than I bring in every month?
Well, you need to start by cutting your expenses very hard and also look for another way of earning more money. If you have a large deficit, then you should probably look into contacting a nonprofit credit counseling agency (not one of those for-profit debt settlement companies). The National Foundation for Credit Counseling (NFCC) will provide a free or low cost service in the US.
Conclusion
Budgeting when you’re broke isn’t just a theoretical financial lesson. The purpose is to ensure you maximize the value of your financial resources through efficient and effective choices with whatever resources you control, no matter how small.
Having a good earning is not necessary for budget making. Be truthful about what you earn and spend, focus on your priorities, and maintain weekly checking system. A weekly $50 cut on your expenditure adds up to a continuous saving and eventually leads you towards a financial security of several months.
[…] Facebook Groups […]
[…] 3. Audio and Sound FX […]