How to budget on a low income

Budgeting is very important for any individual or organization that intends to effectively manage their individual income or organizational resources that are mostly financial. Budgeting has been given different definition however put simply it is the process of creating a master plan on how you intend to spend your financial resources or income. It is the act of deciding in advance how you intend to spend all or part of your income or financial resources. Budgeting will help you to map out and determine proactively your future spending on the desired needs and wants. It helps to provide a checklist of things you intend to allocate your income to which may include feeding, shopping, payment of utilities and subscriptions, shopping and many other expenses you might want to spend on at the end of the month or weekly basis.

The power of budgeting cannot be underestimated as countries and great nations plans and makes budgets for their yearly spending and devise mean on how to get funds to successfully implement the planned budget. Also, organizations whether big or small engage in budgeting activity as well to make ensure organizational resources are utilized efficiently and effectively making it run successfully at the end of the operating period. The significant different in the types of budgeting is specifically on the level at which it’s been carried out. It simply has to do with striking a balance between your income and expenses. Bad budgeting will always be the result when your expenses is greater than your income leading to financial instability making you broke with no savings which good budgeting will ensure proper allocation and spending of your income to appropriate and necessary areas of your life.

No matter you level of income, it’s very important that you budget and make use of budgeting to ensure financial stability in your life. While many of those with high income may be reluctant to budget, those who earn low-income often see budgeting as a very important financial tool to achieve financial goals and avoid a debt situation. Lack of budgeting will only make you a bad planner leading to a frustrating financial situation if appropriate measures are not taken early. Budgeting on your income will ensure that you have financial resources available to be allocated to your basic needs and wants keeping you out of debt and making you financially stable by setting your finances on track. According to Charles Dickens, he said “Annual income of twenty pounds and annual expenditure of nineteen pounds will bring happiness, Annual income of twenty pounds and annual expenditure of twenty pounds will create misery.” Those words he said signifies the importance on budgeting on your income as the absence of budgeting will leading to excessive spending on unnecessary expenses creating financial misery for the individual at the end of the week or month. Both organizations and countries also suffer from inappropriate budgeting.

The following are notes on how to budget on low income and achieve financial freedom

1.  Identify your source of income

The first step you will need to take to start budgeting is to identify your source and streams of income. This will give a specific amount of money you will be budgeting on making you plan within and not outside the financial resources available. Ensure you get your calculations done and make necessary deductions to arrive at your net income on monthly or weekly basis depending on the type of job you are doing.

2. Note down your expenses

The component that consumes a large part of your income is your expenses. It’s very important and necessary that you should know your expenses as a low-income or high-income earner to have a clearer view on what you are spending on. You can easily determine this by going through your financial transactions or records for the past weeks or months. Divide your expenses into fixed and variables. Your fixed expenses are those expenses you must cover up such as rent, insurance, car payments while the variable expenses include clothing, foods, entertainment, etc.

3. Establish your financial goals and plan

After identifying your income and noting down your expenses, you are expected to set your financial goals with due considering towards your monthly income and expenses. These goals might the short term or long-term depending on the years involved such retirement funding, purchase of assets, etc. Figuring out all these as early as possible will lead to planning in coalition wit the financial situation.

4. Cultivate the habit of savings

A good budget will allocate some part of the individual’s income to saving no matter how low or high the income may be. Remember in the popular book, the richest man in Babylon, you always have to pay yourself and only other s by saving at one-tenth of your income. This will serve as a form of investment and might be used in cases of emergencies.

5. Evaluate yourself

Make sure you evaluate your budget at the end of every month or week depending on the time frame established. This will give you an insight on real facts presenting you with an opportunity to compare actual with forecasted amounts in line with opportunity for financial adjustments if appropriate.