How to Create a Low Income Budget

low income budget

As many of you know, I’m now working full time online. We had to take a substantial cut in income to do so . . . and also figure out how to create a low income budget. We’ve done just that. If your income is low, or you simply want to save money, follow these principles to put you in a better financial position.

Principles for Creating a Low Income Budget

You’ll need to follow these tips simultaneously in order for them to work properly. Some will be more difficult than others you’ll find, but keep at it! Eventually you’ll get the hang of budgeting with your low income.

1. Ask yourself: “Do I really need that?”

This is an essential question to ask regarding everything in your life. There are two areas you should focus on when you’re asking yourself this question:

  • Products or services you already have bought or are subscribed to.
  • Products or services you are considering buying or subscribing to.

Many people tell themselves that they won’t buy or subscribe to something that isn’t needed in their life in the future, but aren’t willing to simplify their current lifestyle.

Try this: Make a list of products and services you currently own and ask yourself if you really need those things. Do you really need a cellphone if you work from home? Do you really need that cable subscription if you can get your news from the Internet?

And remember, you need to ask this question with everything you have and everything you’re considering purchasing. No exceptions.

2. Create a prioritized, capped expense list.

As with any budget, you need to create a prioritized list of expenses. But when you’re budgeting with a low income, you should take it a step further: create caps on your categories.

Many expense categories in your budget can become overfunded with time because you have not put a limit on how much you can have in that fund.

Here’s an example: Let’s say you have a transportation fund that you use for fuel, oil changes, new tires, and car repairs. Now let’s say that you can’t imagine ever needing more than $700 in that fund in one given month. You should set $700 as the cap! So, if you’re allocating your income down your prioritized expenses, currently have $650 in your transportation fund, and typically allocate $200 into your transportation fund, you should only add $50 to it this time around. This will bring you up to your cap of $700 and will save $150 that you can put into your next expense category.

To start your prioritized, capped expense list, download my Budget Category Brainstormer. It’s a printable worksheet that has over 80 budgeting categories, spaces for your own, and spaces for your allocations, caps, and priority ranks.

3. Find services that save you money.

Switching services can truly help you save some money. Here are a couple of services we’ve used to keep our expenses down and money in our pockets:

  • Netflix. iTunes and Blockbuster can really but a dent in your bank account. Right now, you can get unlimited streaming of movies and TV shows from Netflix for $7.99 per month. That’s a pretty good deal. Plus, it saves you gas driving to the video store. Redbox is another option, but the selection of movies is rather limited.
  • PerkStreet’s Cash Back Debit Card. By eliminating our credit cards and making PerkStreet’s Cash Back Debit Card the only one we use for everyday purchases, we’re saving money on interest and earning cash back at the same time. You’ll earn 1% cash back on every purchase that you can use to buy things from,, and many other large online and storefront retailers. Plus, you can earn 2 or 5% cash back in bonus categories. Sweet!

There are many other ways you can save money through innovative services. What are a few of your favorite?

Bonus Tip: Try the envelope budgeting system to save some extra money. Give it a shot!

Leave a comment below and tell us how you live on a low income budget. Looking forward to hearing from you!

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  1. Marianne

    I do not do the ‘capping’ thing and wouldn’t necessarily suggest it though if I find a category that seems to be overfunded I might move that money to an area that is underfunded and adjust the ongoing allotted amount. I wouldn’t put a cap on it because several months could go by without needing to do any car maintenance but then suddenly a month comes where I need new tires, oil change and a mechanic visit for a leaky exhaust. If you track your expenses well you should be able to look over a long period of time and average out what you will need for an area of your budget. I am constantly adjusting the amounts allotted as well until they seem to meet our needs just right.

  2. Kathleen K

    I like the idea of the cap, but I agree with Marianne–sometimes when it rains it pours. This would be the purpose of the “emergency fund.” Furthermore, if you are evaluating every expense, even Netflix (at $8.65 including tax which is $103/year) is likely more expensive than the library, which usually has a wide selection of videos. It is also important to include a small amount of “mad money” if at all possible, as that money makes it easier to stick with an austere budget.

  3. XJ

    Kathleen – Not everyone has a library, or transportation to the library. Here, the library is a good 8 miles away (in a state where snow is commonplace even through June), there is no public transportation, and I don’t own a car.

    Netflix is the only thing “fun” that I pay for (I don’t own a TV or cable). It’s a luxury, true, but when you have nothing else and no way to get around, it’s about the only option (Yes, I watch free Hulu too, but they’ve restricted so many of their episodes to ‘pay only’ now.)

    That said, I wonder what the author means when he says “low-income”. To me, low-income is something less than $10,000 a year (I’m currently living on around $6,000 a year, gross).

  4. Pam

    Weiners at $4.50 a package for pig guts. Soooo nutritious. I can’t afford hamburger at $3.19 lb. Thank God Wal-Mart has toilet paper for 96 cents for six rolls. What do you use? Gas is $3.69 gal. What kind of low income budget do you think you can offer me? I had the heat turned off during the months of October, November, and when I did need heat, it hovered at 65 at night and 68 during the day. Utilities go up again – how am I going to compensate? heat or doctor bills? Thank God, I don’t have a car payment on my 96 Chevy Lumina, just carry liability, and my brother does my mechanical work. Thank God, I don’t take medications. The last time I doctored for a pap smear or breast exam was in 1999. Who has $120 for a doctor visit? Do you live in the Land of Milk and Honey, or do you live in Iowa where I am?

    • John Frainee

      Sounds like you have more of an income crisis than a need to lower expenses. Seek out articles related to income and careers. There comes a point that you can’t lower your budget anymore, and you may have hit that point. God bless.

  5. Jonathan

    An excellent list. I’d also add that it’s important to regularly review your spending. I go over my bank statements each month and look again at all my expenditures. Automising payments is excellent but sometimes it’s easy to forget what you are paying out. By reviewing your bank accounts it offers the opportunity to trim the fat and reduce outgoing’s wherever possible.

  6. Taline

    Great list! My husband and I use Netflix and are currently catching up on the seasons of “Lost” that we had missed out on…we find that we seldom watch tv and are going to cancel our extended cable plan because it is a waste of money!

  7. Joan

    Good post. I completely understand how some of your readers feel. Our cars are paid for but older – 1997 & 2002 plus they need work. Our 2000 car transmission went out so it just sits. No money to fix. Gas is $3.93 in Arizona where I live and husband drives 80 miles round trip 5 days a week. Luckily, I now work in town so don’t use a whole lot of gas. I only buy what is on sale at the two grocery stores in our town. We don’t eat much meat and turned to different types of canned beans and even oatmeal for dinner. One thing I have been doing to make extra money is picking up items for free and reselling them at my garage sales. I know it sounds odd to some but hey, it works. I actually have 5 places to find items for free that I listed on my blog to help others out. All this time only my husband and I knew about finding items for free and reselling. So many people toss things out in the trash that are perfectly fine to repurpose in your home and even sell. Use coupons, tell neighbors and friends you are looking for coupons – anything to help you out. Good luck to all – hang in there it has to get better someday.

  8. Know what the hardest part is? The “Do I really need that?” part. It’s very difficult to really look at everything that is currently subscribed to and really decide if it’s necessary. Our friends/family make us feel that all this stuff is necessary, but is it really? I think to do this question good, I’ll have to wait until all my monthly bills come in and look at them each closely, because I think on my own, I might forget some things that my wife and I are subscribed to becuase I’m just so used to them!

  9. Spycam

    Good points. Agree with Taline, as well. TVs are more costly that you buy these for. The time could be better invested for personal learning or at least with your family which will surely bring you some real assets of life…

  10. Carl Lassegue

    I really liked this article! The first point was great because many times we spend too money on things that we really want and that we think we need.

  11. J Marie

    Instead of Netflix, why not try the library? When I was really short on cash, I would try to go one week without spending anything. Staying away from stores really helped me to save money!

  12. Samirian @MoneyWisdoms

    Great article. Many people with low income do not think they have enough to bother with budgeting. I like how the first step you mentioned was to identify need vs. wants. For me, my favorite tip is the libray for books, audio and videos.

  13. Drew Custer

    I think these are great tips for any budget. It doesn’t matter if you’re making 5 figures or 6 figures. I think as Christians we must create a budget that glorifies God and keeps our finances in front of us. I live on a low income budget and the biggest key is not spending on those things that you really don’t need. Give yourself a little spending money that fits in the budget, but never go over that number.

    Great post John

  14. We are trying to reduce our expenses because my husband’s income is varying so much recently. I try to remind myself that even when we feel we have cut everything, there is always room to cut further. Eventually, we will get there.

  15. Laraba

    I appreciate Drew’s comment…these are good tips for EVERYONE. We are currently quite high income (making 6 figures) but we are also expecting our 8th child so we have a lot of expenses now and coming up (clothes,food — we’ll have 5 in their teens at the same time, orthodontia, college expenses, etc.) I try to think about what we NEED vs. what we WANT all the time. We are very close to a public library, and haven’t rented a movie in years but will wait for it to be available. We’ve never had cable in our 15 years of marriage. We buy the children’s clothes and mine almost exclusively at thrift stores and are blessed to receive hand me downs from others as well. I know there are areas where we could cut down, groceries probably being the biggest. I struggle there with finding the time and energy to shop for food selectively as life seems incredibly busy. I just need to remember that we can always be working on SOMETHING financially, we can always be trying to find ways to save a little here and there for future needs.

  16. mark

    Try Clark Howard’s ways to save a dollar in Money Digest
    buy a peek phone, unlimited texts and emails for 10$ a month
    shop item a day deal sites for electronics like
    buy prescription glasses online for under 10$ includes Rx lenses at
    join a hospital gym. cheap and pay by the month
    let online pharmacies bid for our business at
    I have used most of these and Clark Howard knows how to find a deal