how to budget when you are broke

When you’re broke, do you really need a budget when you don’t have much to work with?

I get this question A LOT, and let me tell you, there isn’t a single person on earth that’s exempt from budgeting their money. It doesn’t matter how much you have or don’t have – your money is too important to leave to chance.

Today’s lesson is all about how to budget your money when you don’t have much money to manage. I know it sounds crazy but knowing how to spend every dollar can help you avoid sinking into debt and actually give you more money to spend in the long run.

You’re Broke, Not Broken

It doesn’t matter if you have a low-paying job or an above-average salary: broke happens. 

Cost of living rates creep up. Gas prices skyrocket without warning. Car repairs happen at unexpected times. Your bonus at work wasn’t as big as it usually is, and you didn’t get a cost of living raise as expected. 

Pretty soon, you’re left with bills and other expenses that eat into your savings. It might not seem like a lot at first, but little financial nuisances like these can quickly amount to major debt. 

Major life events like divorce, unemployment or under-employment, serious illness, and unplanned pregnancy can all be crippling financially. Each of the above carries ongoing expenses that could take years off your financial progress.

Suddenly finding yourself in a terrible financial position may not be your fault, but it does put you in a difficult position. The sooner you can take control of the situation the sooner you can climb out of the debt hole and back to stable ground.

How to Start a Budget When You’re Broke

Regardless of why you’re broke, the primary solution is to live according to your budget, not the other way around. So many people believe that their financial problems can be solved if only they made more money, but your income isn’t always the problem. A strong budget and a few clever management techniques can help you stretch what you have so you can focus on chipping away at your debt.

I've put together some helpful tips to give you food for thought and actions you can start putting to good use today:

Review Your Spending

The first rule of budgeting is always to figure out how exactly you're spending your money. 

  • How much money are you bringing in?
  • What are you spending it on? 
  • Are any of those expenses unnecessary? 
  • What new expenses are you now saddled with (medical bills, legal fees, etc.)
  • Can any of these expenses be cut immediately to free up your cashflow? 
  • How much can you now afford to spend on certain items, like rent, food, or transportation? 

It’s important to examine your financial situation from every angle so you can figure out where your cash is leaking and start plugging the holes.

Eliminate Discretionary Spending Immediately

Once you review your finances and track every dollar, you might be surprised to see exactly where your money has been going. Some expenses are easier than others to eliminate. 

When financial distress happens, you might not be able to live the way you’ve always lived and dealing with the fallout can be more stressful than you think. You’ll need to make some changes to how you spend, save, and plan to make your new budget work.

Negotiate Your Bills

If you ask, you may be able to get an extension or a payment plan on your bills. This can help you if you’re behind on bills so you can catch up without incurring late fees and sink lower into debt.

This is one of the most overlooked opportunities to help you manage your debt. Most people don’t think to ask about payment plans or working with their creditors to see if they can get alternate terms. 

Start an Emergency Fund

76% of Americans are living paycheck-to-paycheck today and just one event could cause a financial ruin. Increased cost of necessities is outpacing salary increases, and if you fall behind on your finances you may never fully catch up to where you were.

Having some cash for emergencies can help mitigate this risk. Ideally, you’ll start an emergency fund long before you really need it. But if you didn’t think to start one and now you wish you had, you can start stashing your cash whenever you can, even if it’s just the spare change in your pocket. Earmark for emergencies only and tap into when surprise bills or expenses eat into your monthly budget.

Stretch Your Meals

Food is a necessity to live, but it doesn’t have to be expensive. Skip ingredient-heavy meals and opt for ones that are inexpensive, filling, and offer multiple servings. This saves you on cooking time and trips to the store, plus it lowers your grocery bill. Sandwiches, homemade soups, and casseroles all make great options.

Do Things Yourself

Things you usually pay for others to do might be cheaper if you did them yourself. Teach yourself how to sew, perform minor car maintenance, home repairs, or make your own laundry detergent and cleaners. 

Track Your Budget Each Month

Budgets can change from month to month, so you always need to know where you stand. Make sure your budget is staying on track. you can take it a step further by ensuring your financial status is increasing rather than decreasing or staying the same. The goal is to get you out of being broke so that you can enjoy the things you love without worrying about money.

Put Your Plan in Writing

You can use all of the above to inspire a savings and debt repayment plan but putting it in writing helps to make it real. Write down your specific goals and review them frequently to help keep you on task

But What If I Really Don’t Make Enough Money to Live?

It’s not easy making a living on minimum wage, or even slightly above minimum wage. If we’re being honest, life can be expensive no matter how much you’re making. Complications are compounded when you’re facing major financial headaches like student loans, divorce, medical bills, health insurance, or childcare. 

If you try my budgeting tips and still find that you're unable to cut expenses, there are some other things you can do to change your financial situation.

Take On a Side Gig

We are living in the side hustle era. So if you get laid off from your job, get your hours cut, or get some unexpected expense, there are plenty of things you can do to make a little extra cash to get you through. Drive an Uber, sell or consign some furniture or clothes, provide a service like lawn mowing or painting, whatever you need to do to get the extra cash you need. Side gigs can be quite lucrative and don’t require a major time investment.

Our economy is looking strong right now there are tons of opportunities for you to make a little more money. You’ve just got to be savvy enough to look for them. 

Invest in Building Your Marketable Skills

People don’t just land high-paying jobs by accident. The ones at the top of the corporate ladder got there by investing in themselves.

Now I know some college graduates that have a degree, are still paying for that degree, and are only bringing in $30K a year. The truth is, just having a college degree isn’t enough to give you financial security. It truly depends on the type of degree, the field of work you choose, and the other skills you bring to the table that will give you a better career opportunity.

Whether you’ve already got your degree, working on it, or barely got through high school, you need to have more to offer an employer than just the basics. Start by researching potential career opportunities. Find out how much they pay and what skills will make you look irresistible to a recruiter. 

There are tons of online courses (free and pay-for) that can help you learn something new. This is easiest way to get experience and education on your own terms and focus on what you want to do. You don’t always need a college degree to make opportunities for yourself, but you do need to have something to offer that’s better than what everyone else is offering.

The Bottom Line

Being broke isn't always your fault. Everybody gets hit with unexpected medical bills or other expenses that can shake up your financial situation. But staying broke is a choice, so use my tips above to ensure you're making the best choices for your finances.

If you've got questions, I'd love to hear them. I'll discuss them in an upcoming Q&A and give you the answers you need. 

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