Are you willing to learn how to create your first budget as a low income earner?
Have you been struggling with proper coordination of your finances?
Getting good with money requires having a good sense of budgeting skills.
How to create your first budget as a low income earner
It might be overwhelming to sit down and craft out your first budgeting draft as a low income earner but as much as it’s not an interesting exercise for a first timer, it is highly essential to know how you are spending your money.
Before we start learning how to create a budget, we need to understand the basic definition of a budget.
A budget is the overall estimate of your total income. The amount of the money coming in for you, the once available for savings or investing and your total expenses for a year. It can also be as simple as getting a sheet of paper, separate it into two columns. Records your total income on one side of the page, and your expense on the other side of the same page.
This article will educate you on how to create your first budget as a low income earner.
There is this general misconception that you need plenty of money before you can start budgeting. Remember if you cannot learn how to budget with a low income, you are not likely to budget a big income. A budget is setting boundaries from a world that constantly wants to spend your money.
There is a lot of strategies for budgeting, some opt to use pay yourself first rules before paying for other bills while some make sure all their income is put into good use by making sure every dollar is budgeted with nothing left at the end of the month.
As a low income earner, you might not be sure of where to start your budgeting. Keeping an income diary of where you randomly record all your income and daily purchases is a good place to start budgeting with little income. This will help in getting a grasp of how much you have been spending, where you can reduce your expenses and how much money you can save.
Things you need to include in your first budget.
- Your first budget should have the list of your total income for the month and the list of your total expenses.
- Include a one year spending plan
- Determine your good life
- List of what you need
Things you need to remove from your first budget
- Late fees and high interest debt: Growing into an adult makes people feel they can indulge in anything. Things like using credit cards to shop and eat out. Forgetting to pay your bills on time quickly add up some high interest debt that are not good for a low income earner. It is important to remove this from your total budget as a low income earner.
- Stop meeting other people’s expectations with your budget
- Cut out unnecessary expenses like expensive beauty products, gym memberships, wax appointments.
- Don’t spend because everyone is spending
Benefits of budgeting for a low income earner
- Budgeting gives you a clear vision of how to allocate your money for efficiency.
- Helps you achieve your money goals faster
- Helps you create legacy with your money
- Helps you navigate around your income with ease
- Helps provide direction, coordination and assign responsibilities for your income.
How to create a budget plan as a low income earner
- Know your cash flow: You cannot create a budget plan without actually knowing how you are spending your money. A wonderful place to start dating your budget is getting a printed copy of your last 6 months statement of account. Set out some minutes out of your time to check what your spending looks like for the past months.
- Test out different budgeting strategies: To find a suitable budgeting strategy for you as a low income earner, you need to experiment with different styles of budgeting ranging from the traditional drop down list method, line item method, zero based method, pay yourself first method and modern apps. At the end of the day, make sure the one you stick with is your golden choice that helps in achieving your goals.
- Create a plan: You need to craft out a working plan that will suit your style. It is almost impossible to start budgeting without a road map. Budgeting without a plan will lead you to nowhere. No one wants to drive out of town without a map, likewise it’s not advisable to create a budget without a plan.
- Prioritize basic needs: Start your budget with your highest priority items. These items might be housing, food, clothing, transportation, eating out and so on.
- Get familiar with your budget: Make it a habit to familiarize yourself with the budgeting style you choose and learn to stick with it.
11 Steps to create your first budget as a low income earner
- Decide how you want to budget: The decision on how to start budgeting depends on you. When you decide to start budgeting, you aim to achieve some financial goals. This can also help you find balance between your spending and saving habits.
- Gather enough information about your account details: Conduct proper checks on all the types of account you are operating. Get a printed copy of your bank statements if possible. Compare and contrast the transactions you have carried out on each of the statements. Figure out a way to start budgeting your finances as soon as possible.
- Prepare the budget to suit your personality: Budgeting shouldn’t be that hard, the first major hurdle you need to overcome is the decision the start. After making the decision, swing to action.
- Keep it simple: Do not be too hard on yourself with your first budget. Keep it simple by rounding up a lot of figures at the initial stage. Aim to be precise in your calculations as you get familiar with your budgeting skills.
- Take a closer look at your transactions: Learn to relax while looking at your transactions. Do not put any pressure on yourself during the process. Remember you are just getting started and it might take a while before you start getting good at budgeting.
- Figure out your goals: Building a budget with your goals in mind makes it a lot easier. Your goals might be travelling around the world for the next 5 to 10 years or buying your first house. Figure out a sustainable approach to tackle and maintain your stated goals.
- Figure out what to do with your extra money: While budgeting religiously, there will be some left on the table for some extra activities. Decide on where you will like to channel the extra cash into. Some might be going back to your investment or savings account.
- Determine your total spending analysis for a month: Determine how much is needed for you to cater for all your basic essentials for the month. Keep track of the items you used cash to purchase and likewise the once you used credit cards to purchase.
- Prioritize existing debt: Note down all your existing debts and find a way to start paying them off as soon as you start budgeting.
- Use your budget to guide your spending: Always stick to your budgeting plans and tips. Follow your written down budgets diligently. Make it a rule to always shop with your budget handy anytime you intend to buy some items.
- Plan for entertainment: Always leave room for fun in order not get quickly discouraged with your first budget.
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