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Photo Courtesy of chego101 (flickr)

Photo Courtesy of chego101 (flickr)

What you’re doing now isn’t working.  Presumably, you already have some sort of a financial plan in place, but something isn’t right.  Maybe you’ve overdrawn your checking account, or racked up a huge bill on your credit card, or you constantly find yourself needing to buy stuff, but you’re broke.  You don’t think there’s enough money coming in to cover the expenses that are going out.  But how do you know for sure?  Is it possible to live on a tiny income right out of school?  Can you afford to even make the minimum payments on your credit cards?

If you’re reading this article in search of a solution to actually survive on a low budget, you’ve come to the right place.  By following the action steps below, in order, you will be able to accurately calculate how much money you actually have and if you can afford to continue to live your current lifestyle.  Take these steps seriously and make a plan today to start on number 1.  Every step is important and all of them add up to a life of financial intelligence.  You’re going to need it.  If you’ve ever tried to pay your own taxes, start a business, or even understand what your insurance bill actually says, it’s complicated.  Start the learning process now to ensure a life filled with financial blessings, instead of annoying burdens that ruin your day.  Let’s get started!

How to Survive on a Low Budget

1. Stop Borrowing Money

This is the most important step!  Seriously, stop borrowing money and slow down on excessive spending.  Digging yourself deeper into a financial pit will only make the rest of your efforts futile.  If you haven’t already, read my post, Finances 101: The Truth About Debt.  This article outlines why debt sucks and how you can live with the cash you earn.  Surviving on a low budget means spending less than your make every month, not justifying unnecessary expenses to yourself so you don’t feel guilty.  Taking an honest look at your spending habits is painful, so be prepared to make sacrifices.

2. Calculate Your Exact Monthly Income

This should be simple if you have a typical 9-5 job.  It gets more complicated with irregular incomes, so let’s do the easy one first.  Most paychecks are dispersed about two times per month.  Meaning, you can simply add two paychecks together and you’ll have your number.  However, be sure to notice what is withdrawn from you paycheck including taxes, 401(k)s, health insurance, etc.  You’ll be using these figures later in the budget.

If you’re income varies, meaning you’re in sales, work odd hours, have your own business, work multiple jobs, etc., you will need to calculate your income very closely and use wise future estimates to ensure accurracy.  You will definitely need a savings account to use as a backup whenever your income dips too low.

3. List ALL Planned Expenses

This list will be long, and it is very important to be accurate and comprehensive.  Make a complete list of every expense you typically have every month.  List everything from rent and utilities, to magazine subscriptions and haircuts.  This list is especially important for those with really tight budgets or tend to be big spenders.  For those with irregular incomes, make a prioritized spending list that you will simply pay in order as the money comes in.  At the top should be things like rent, electricity, food, and clothes.

4. Create a Budget (or Download Mine)

Now you’ll get to combine the information from steps 2 and 3, into a comprehensive spreadsheet.  You can find examples of budgets everywhere online, but the most basic, which is where you should start, simply lists your income on one side and expenses on the other.  At the bottom will be a number that tells you how much money is leftover.  You can create your own from scratch, but I recommend using a template or at least doing some research to find one you like and understand.  I’ve placed a link above to the template I’ve created.  It’s free for you to download and use.  If you find it helpful or if you hate it, please let me know.  The trick to the budget is actually having one.  Most people don’t.  If you have one and you actually use it every month, you’ve given yourself a huge head start over most people.

5. Create an Account on Mint.com

I’ve mentioned Mint before and I’ll mention this site again.  It’s awesome.  Technologically, it’s the coolest money management site in existence.  Recently, Mint was bought by Intuit, the creator of Quicken.  This means that Mint will only continue to be more comprehensive and capable of handling even the most complicated financial portfolios.  You can setup nearly every financial account you have to automatically update with you most recent balances.  The financial institutions that Mint doesn’t have yet, which is few, can be manually added as well.  In other words, you can get your complete big picture perspective over all of your finances.  Mint also added a budgeting section recently, but until it becomes more advanced, you will still need a spreadsheet budget of your own.

If this blog post is inspiring you, just click on the links to the left or at the bottom of the post and share it with someone who you think would find it valuable as well. I’d appreciate it and I think he or she would as well.

6. Download a Digital Checkbook

Old school hand-written checkbooks are out.  Digital checkbooks and websites that allow you to predict future expenses are the way to go.  If you own a Mac, which I am prone to recommending every day of the week, you should get MoneyWell.  It’s the one I use over Quicken or any other more advanced checkbook because it’s simple.  That’s the point.  If you overcomplicate your money you will only confuse yourself.  Don’t upgrade to advanced financial software unless you have to, which most people don’t.  If you own a PC, resist buying Quicken, unless you’re over 40.  Otherwise, check out this website for a list of a bunch of great choices.

7. Organize Your Bank Accounts

For ease of use and to help automate your money, there is a simple way to organize your bank accounts that will help keep you on top of your money without having to monitor every transaction like a cracked-out accountant.  First, find a bank you don’t hate.  Big banks are good for online banking, which is why I recommend them, but they are prone to terrible customer service.  Smaller banks are usually very easy to work with, but are so behind technologically that it’s very difficult to keep up with the latest financial trends.  Pick your bank and then open 2 checking accounts and at least 2 savings accounts.  The first checking account will be your main checking, the one you carry a debit card for and spend from daily.  The second checking account will be your Bill Pay account, where every regular expense will be automated from (more on this in step 8).  The first savings account will be your emergency fund where you should have at least $1,000 and this money will ONLY be spent in the instance of actual major emergencies.  The second, third, and other savings accounts will be for specific items you want to buy (house, car, iPhone, etc.).  I also recommend HSA’s, health savings accounts, because you can make pre-tax deposits and use the money for all your doctor’s bills and prescriptions.

8. Automate 80% of Your Money

Here’s where your work will really start to pay off.  Automation is the name of the game when it comes to making money management easier.  Using your Bill Pay checking account, you should have every regular income and expense automatically deposited or withdrawn from that account.  This includes direct deposit from paychecks, savings, tithing, giving, rent, utilities, cell phone bill, loan payments, credit card payments, 401(k)s, insurance, subscriptions, and any other payment you make throughout the year that could be paid without you having to manually write a check or make an online payment.  Then, the money leftover should automatically be transferred to your Main Checking account, for you to spend on stuff you can’t automate, like gas for your car.  With this system in place, you will have fewer decisions to make and you will literally be telling your money where to go.

DANGER: make sure you’ve made every effort to be accurate – if you automate your account with too many expenses, you will inevitably overdraw your account every month.  Be careful and have someone else check your figures if you need it.

9. Find Cheaper Ways to Live

At this point you should have made many discoveries about where you’re money has been going and where it ought to go.  If you haven’t already, you should find expenses in your budget you can cut completely, forever.  Other items you should be able to make cheaper, like groceries or shopping sprees.  Learning to tell yourself NO! will be the hardest lesson you’ll have to learn.  It sucks, but it has to be done.  Otherwise, you’ll find yourself spending more than you earn, digging your hole deeper and deeper, and not realizing until it’s too late.  The greatest benefit of going through this process is learning to change your habits.  Learning to think differently.  Go through the motions and you will certainly make a positive impact on your life very quickly.

10. Live on the Money that’s Leftover

Assuming you have set up the automatic transfer to your Main Checking account, there should be a small amount of money you get to live off of.  The coolest part about this account is that there is a finite amount of money, meaning you don’t have an endless supply like most people think when they use credit cards.  Throughout each month you will be spending your money, knowing where your balance is on any given day, and only spending your money on the items you’ve pre-determined to be acceptable.  Now, don’t forget to include some flexible spending money so you can go crazy once in a while.  You need to have flexibility because money is always moving and you need to break from the structure occasionally to stay sane.

11.  *Don’t Stop There* – Keep Reading!

Seriously, start or continue to read about money.  If this is the first article you’ve ever read about money management, you’ve just begun a lifetime of learning that should include many more blogs, books, seminars, classes, discussions, and other forms of learning that will teach you about money.  If you’ve ever dreamed about becoming a millionaire, or even just being financially stable, you need to teach yourself how money works and how you can best use it to reach your goals.  Money is a tool to be used to accomplish the things you want in life and if no one has ever taught you about it before, the responsibility is now on your shoulders.

ACTION STEPS

After you finish reading this blog I want you to do 2 things.  First, start on step 1: Stop Borrowing Money!  Second, buy a book about money and begin to teach yourself how to live differently.  I recommend reading The Total Money Makeover by Dave Ramsey and Rich Dad, Poor Dad by Robert Kiyosaki.  There are thousands of other financial books out there, but these two can give you the foundation you need to get started today.  You’ll also notice that most of the lessons I taught in this blog come directly from these two authors.  If you have any questions about what I mentioned here please feel free to contact me.  I’d be happy to answer any questions or field any comments you may have.  Good luck with your budgeting and stay positive!

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Don’t forget to check out my new revolutionary eBook for conquering life after college!

The Clueless Graduate,

Jeff & Tessa Sanders

Jeff Sanders


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