How to Budget Money on Low Income Using These Top 10 Tips

Below I will show you how to budget money on low income

If you don't believe me, I will prove that it is possible for so many reasons

First of all, most of the families don't really know where their incomes go

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how to budget money on low income

They don't know how to budget their income

Also what causes deficit in their day to day expenses

For example, do you know you mortgage/rent percentage to your household income?

You will be surprised to discover you pay 50% or more of your income in your mortgage/rent and you don't even notice that

That's why according to CNN one third of Americans didn't their rent in April, 2020

I know it is because of COVID-19, it also indicates a fact they don't have any reserves

Convinced now, if so let me list the top 10 tips on how to budget money on low income

Start using a budget and stick to it

You have no way to balance your life on low income without sticking to a budget with your family


A budget can tell you the percentage of how much you spend according to your income

Also it can help you to focus on keeping your expenses to stay the same

Keep your housing costs minimum

This is the core, the meat and butter and mother of controlling any household budget

If you control your housing costs you are 9 out of 10 on the right track on how to budget your money on low income

In 2010 and 2011, me and my wife were getting paid 52% of our current income

We were really living very good, many months we doubled our mortgage payments and still have a lot of room to breath

Right now our household income got doubled but life is not like before

Very simple, we were living in 170 K Condo and moved to 480 K townhouse

Back in 2012, it was my first time to know that banks have a mortgage lending criteria that housing costs should be around 40% threshold of your income

I asked the financial adviser why it is like that

I remember he told me if you reach the 40% threshold you will be living paycheck to paycheck

Although all banks would agree to lend you with 40% threshold but learn from this lesson

Housing costs eat up your income so if you are single, I would say there is nothing wrong if you live with your parents

You can contribute by paying them a reasonable amount for using your room

If you are married or living with significant other, check how much you pay for mortgage/rent and downsize if it is beyond or near 40% of your total income

Build an emergency fund

Yes, building an emergency fund is added here in the list for a reason

This is not a typo or mistake, I will tell you why

Usually if you are living on low income, I assume you are barely making ends meet

What if you encounter urgent bill you cannot afford to cover with your low income

For example, all of the sudden you start your car in the morning heading to work

You find your battery is dead, you have to call a towing company if not a member of AAA or CAA

Surprise, you have a new bill for car battery to replace

If you set aside an emergency fund, you will protect yourself from falling into debt


Eliminate your debts completely

Right after having a minimum of $1,000 saved in your emergency fund

You start the snow ball process of working towards paying off all your debts

Best approach as per Dave Ramsey‘s book Total Money Makeover is by tackling your debts based on using the debt snowball method

You have to list all of your debts starting from the smallest payoff balance to largest

Ignore the home loan and list all debts the way mentioned above even if you have a money taken from friends with no interest

It doesn't matter here if it is zero or 24% interests and pay the smallest debts first

The only exception to this rule is a money you owe to the IRS in US or CRA in Canada

The reason I asked you to work on paying off the smallest first because you need to feel the small wins that boots your energy towards the largest ones

Get rid of non essential expenses

Original title was get rid of entertainment expenses

Then i realized there are so many expenses that are not an entertainment but you still need to cut them completely

Like GYM membership or the expenses of owning a pet

Perhaps speaking about owning pet is considered crossing the lines

Anyway I will list some expenses for you to cut as many as you can

  • Dinning out and going to restaurants
  • Going to theaters
  • Culture events you pay for
  • Attractions
  • Performance arts
  • Playing in Casinos
  • Buying tickets for sports
  • GYM membership
  • Owing a pet
  • Paying for cable – replace it with IPTV

Cut back on discretionary spends

I always refer to my personal coffee addict story

After realizing I cannot stay one single day without ordering my Starbucks morning coffee

I analyzed my monthly take away coffee orders and I decided to keep it to once or twice a week

Bottom line, you have to fight temptations and look for your needs over your wants

Use cash envelope method

Living on low income puts you in a situation where sometimes you have no choice but to use a cash envelope method

If you don't know what is cash envelope method

It is simply you work with cash only where you don't carry credit cards at all

You leave your credit cards at home

There are few people who cut their credit cards and carry the cash envelopes whenever they go shopping

If you assign let's say $550 for grocery then you pay for your grocery from the grocery envelope

You manage to distribute the amount of groceries throughout the month

Once you are done with your envelope you cut your spending on this expense

Build zero-sum family budget

If you are not aware of what does zero-sum budget type means, simply you employ every dollar you earn from your income and give it a job to do

By doing that you prevent waste, maximize your income and help you to save money

Again, if you still don't know how to build your personal budget

This is the best time to click the link above and leave it for me to put you in the budget mode

learn how to build zero sum budget

Increase your income with side hustle

You know I am discussing here different ways on how to budget your money on low income

But what I really don't understand, if you are on low income why don't you take an action and change your situation

You have no excuse if you think you have no skills or talent to use

Let me tell you that you have tons of things to do

I encourage you to read my post how to make 200 dollars a day

Automate your savings

Definitely you wonder what savings automation has to do with how to budget your money on low income

Simply, if you don't deduct even little amount of your income when getting paid, then how do you expect yourself to save money

Saving on low income will never happen for you if you pay all of your expenses first

It works the other way around by deducting little amount

If you still have money left after paying your expenses then add more to your savings


Say No for lease or rent to own products

I have to admit I made a mistake buying a new car where I incurred paying around $530 with interest for 5 years

It completely exhausted me and my wife financially, I wouldn't do it again

If you plan to buy anything for your home, I urge you to stay away from rent to own products

Exception if you have an offer to pay for a product for 6, 12 or 18 months with no interest, make sure you confirm that there are no hidden fees

Regarding lease for driving a vehicle, I don't get it why you pay for using a car

Then after 2 – 3 years you ask to own it they change you inflated price compared to the exact same used car in the market which forces you to start a new lease with different car and the cycle goes on and on

Take advantage of tax credit

The only advantage for low income families is the fact that they fall in a low tax bracket that they qualify for a tax credit called EITC which stands for Earned Income Tax Credit in US equivalent for WITB Working Income Tax Benefit in Canada

Question is what you can do with this lump sum of government tax credit money

First, start by building an emergency fund if you don't have one already

Start with the $1,000 emergency fund baby step then

If you are still in debts you will have to pay off all of your debts first

It doesn't make sense to deposit the tax credit money into retirement saving account while you still have money owed to debtors

This money is not for luxurious spending or booking a travel package

Final notes on how to budget money on low income

If you are reading this post and you see yourself in a low income bracket

Start building your budget right now, don't wait for another later

Saving for an emergency fund is not optimal, it is mandatory to face the all of the sudden incidents that happen in your life

Working to pay off all of your debts will get you out of the rat race

In your low income scenario, it may be useful to try the 52 weeks money saving challenge

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Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.