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Home Management and Budgeting Training

Low Income – No Income . . . Now What?

Not knowing for sure if it will be enough to pay the rent and groceries this month, is one of the most difficult circumstances someone can find themselves in. If this is your situation, here are some points to consider during this difficult time:

Take Care of Essential Living Costs

Pay your rent and food first.

Pay your utilities. Reduce or cancel any services that you don’t need right now.

If you’ve lost your job, do you have assets that you can sell? Look around the house and see what you could do without, even temporarily.

Are you able to increase your income? Consider taking in a boarder, renting the garage.

Banking, Credit and Debt

If you owe money to your financial institution (loan, credit cards) and fall behind on the payments, your bank or credit union can use any funds that you have in your accounts to pay down these debts without notifying you. It might be a good idea to open a new account at a financial institution where you do not owe any money. Deposit any money you receive to this new bank account.

If you are not able to pay your debts, your credit rating will be affected. However, your credit rating will start to recover after you are able to make your payments again. In the mean time, take care of the essentials first.

Communicate your current situation to your creditors.

Getting More Help

Community assistance is available to those who need it. For example, don’t be afraid to ask for help at the food bank or at your place of worship if you are struggling to make ends meet. Community service centers are also great places to find additional resources.

Only use cash and only buy essential items during this time. Your family and friends won’t want to see you struggle, so only spend what you can truly afford. This is not a time to rely on credit and get into debt.

Find a non-profit credit counseling service in your area for further help and guidance.

1. Introduction: Budgeting Tips & Basics

If you struggle from debt or are looking to take control of your finances, there are a number of life changes and budgeting tips that can help solve your problems. Although it may seem hard to turn around a sinking ship, the following budgeting course can help teach you the skills you need to overcome your money troubles.

The first step is to start right away. If you’re ever going to get out of the hole, you have to stop digging right now. This means that you need to reduce all excess spending as soon as you can to avoid incurring new debt.

Also, you should begin to transition to a cash-only lifestyle. Using credit and debit cards can easily put you in an “out of sight, out of mind” mentality. The more you use paper money, the less likely you will be to overspend.

As we proceed, remember that budgeting is an ongoing process. Staying disciplined can be hard, and you may stumble. If that happens, it’s important to get back up and try again, one day at a time. Budgets can be adjusted and there’s no goal you can’t reach with the right amount of practice.

2. Track Your Spending

Before you start creating a budget, you need to be aware of how much you spend. Track your spending over the next month and make notes of how much you spend on:

Bills
Loans
Living expenses
Entertainment funds
Groceries
Everyday purchases

The total of these expenses will be your total monthly spending. We also suggest that you continue to keep track of your expenses after you have made a budget to make sure you are sticking to your plan.

There are many ways you can track your spending. If you prefer pen and paper, you can keep track of all of your daily and monthly spending in a calendar or a notebook. You can also keep all of your receipts and sort them out at the end of the month.

You can also keep track of your spending online using your computer or an app on your phone. There are a variety of programs that can help you make a budget online and that assist with organizing, tracking, and cutting back on your spending.

However you choose to track your spending, it’s important that you track everything and stick with it. That means every $4.99 latte needs to be accounted for. If you’re going to plug your budget leaks, you need to know where every dollar is going.

While tracking your spending, categorize each bill or purchase into separate categories. For example, the categories listed in our budget worksheets include:

Housing (mortgage payments, rent, property taxes)
Utilities (gas, electricity, water, sewage)
Automotive (gasoline, car payments, insurance, repairs, DMV registration)
Loans (student, personal, financing loans)
Amenities (internet, phone, monthly subscriptions)
Medical (bills, insurance)
Taxes (income)
Entertainment (activities, gifts)
Necessities (clothes, household products)
Groceries (food, pet food, dining out)

Include as many categories as you need to cover all of your expenses. If you track your spending carefully, you may even learn new things about yourself.

Once you’ve tracked your expenses, you’ll have all the information you need to create a budget that is accurate and effective.

3. Calculate Your Take-Home Income

Once you know how much you spend a month, you should also calculate how much money you have coming in. For some, this can be easy — many of us typically have regular paychecks that come in the same amount every one or two weeks.

However, you should include every source of income you have, no matter how small. Do you rent a room in your home? Does anyone owe you? And what about your income taxes?

Every amount of money that comes in can be considered a source of income. And no matter where the income comes from, you should include it in your budget and apply it to your expenses, debt payments and goals.

4. Setting Financial Goals

After you’ve calculated your income and tracked your spending, it’s time to think about setting financial goals. Why are you thinking of creating a budget in the first place?

Some of the most common financial goals are eliminating your credit card balances and paying off debts. This can help with your credit history, your ability to qualify for loans in the future and your overall quality of life.

Another goal is to buy a home or car. If you are considering applying for a home or auto loan, you may need to begin saving for a down payment. A large down payment can result in a better interest rate, a lower monthly payment and more savings over time.

There are three types of financial goals you should consider:

Short-term financial goals
Medium range financial goals
Long-term financial goals

Short term goals are goals that can be reached within a year. Paying for a new television, computer or family vacation are all short-term goals that you could easily achieve in 12 months or less.

Medium range goals take up to 5 years to achieve. This could include paying off a credit card balance, a small personal loan or saving for a down payment on a car.

Long-term goals take 5 years or more to achieve. Saving for a college education or a new home are common long-term goals. Saving for retirement is an example of a goal you may be working towards for the rest of your life.

Once you’ve picked your goal, you’ll want to consider when you can complete it. This will give you a better understanding of how much money you will need to put aside every month. Then, add that amount to your monthly spending. You can categorize this expense as “Savings.”

5. Create a Budget

After you calculate your income and expenses, it is time to create a budget. This step includes balancing your budget and trimming off excess spending.

First, subtract your total monthly expenses (spending) from your total monthly income. If you are in a deficit (or negative), you will need to find areas to cut or reduce your expenses or increase your income.

Our budgeting charts divide expenses into two categories: necessary (needs) and discretionary (wants).

Discretionary expenses or wants are the first items you should look to cut if your budget doesn’t balance. This could include money spent on entertainment or monthly subscriptions (like streaming services and monthly food deliveries) that are not necessities.

Because no two situations are the same, it can be difficult to determine exactly how much money should be spent in every budget category. However, we do have a general idea of how your spending should break down:

Housing = 35-45%
Auto and transportation = 15-25%
Monthly utilities = 8-15%
Food expenses = 10-20%
Medical expenses = 8-15%
Clothing and necessities = 5-10%
Savings = 5-10%
Debt payments = 20%

Savings are a crucial part of your budget. You should strive to save as much as possible for emergencies, retirement and other goals. For now, set aside 5-10% of your budget to go straight to savings. Once you have repaid all of your debts, you should try to save as much as 20%.

Miscellaneous expenses including clothes and other necessities should be around 5%-10% of your budget every month. This is a big category for most people, so you’ll likely have to make some cuts here to balance your budget.

Up to 20% of your monthly budget should be set aside for credit card and other debt payments. This section does not include your auto loan or mortgage. If your debt payments are taking up more than 20%, you may have a problem that needs more serious help.