Nowadays, people often go broke due to not managing their money efficiently; as such, the struggle for these kinds of individuals will be harder compared to the ones who created a budget plan beforehand. But, this doesn’t mean that it’s too late to start budgeting even if you’re broke. As such, we wanted to share this article to learn about the best ways to save money on a tight budget and learn the best ways to budget money.
Budgeting is known as the process of building a budget plan to help with managing money effectively. By creating a budget plan, it will allow the forecasting of cash flows and the analysis of the financial situation on whether there will be enough funds to do the things needed now or would like to do in the future. There are many benefits one can get by simply creating a budget plan such as:
- Keeping track of expenses
- Ensures that there will always be liquid money
- Balances the income and expenses
- Easier allocation of funds according to priority
- Debt repayment schedule
- And many more…
To learn more about what is Budgeting, its uses, and its significance, please read the article: What is Budgeting?
When creating a budget plan, it is detrimental to know which type of budgeting worksheet to build, however, in the case of personal financing, the budget plan doesn’t need to be too complicated and can be created manually by any kind of user. If you want to know the many types of budgeting plans, you can read the article here: 18 Types of Budgeting and their Classifications.
Top 10 Best Ways to Save Money on a Tight Budget
A budget is an excellent tool for managing your finances especially for people who often spend more than they can afford. Keeping track of expenses can be very troublesome as well as withholding the urge to splurge is nearly impossible but, it is a must to control yourself not to be buried in debt. Doing is more laborious than planning; as such, the practice of budgeting itself will require one to have a strong determination to keep up with the plan.
To make it easier, here we listed the top 10 ways to budget your finances when on a tight budget:
1. Reviewing your previous Expenses.
To determine your spending habits, it is essential to look back and consider what kind of expenses you incurred previously as well as other expenses that you might incur in the future. Therefore, as you review your previous expenses for budgeting, list down every possible expense you could think of. With a list, the elimination purpose will be a lot easier and it will also be more convenient in getting a much more accurate budget with everything being considered firsthand.
2. Set up your priorities.
It is crucial to put a level of importance to your priorities. This way, it will be easier to allocate your resources efficiently and wisely. This will be quite easy if you list down everything that you think you might spend your money on. After listing everything, start ranking it according to the severity of the “need”. Now, you must keep in mind that it is the level of “need” that you want to emphasize rather than just a “want”. Meaning, put priorities first to expenses that you can’t live without and then categorize your expenses that way. This will further help you eliminate extra expenses in the long run.
3. Create a Budget Plan according to Priorities.
Now that you know which expenses need an allocation of money, it is best to create a budget plan for it to manage your money. Your budget plan doesn’t need to be too complicated, simply by listing your sources of income, your expenses, and savings (if possible with your budget), then calculating your net income by subtracting the total expenses to your total income. It could be a monthly budget or a weekly budget, depending on your need for precision budgeting.
Feel free to download Personal Finance Budget Model Templates here if you want to save time from creating a budget plan from scratch.
4. Assess your Financial Situation.
Is your income enough to provide for your needs? Will there be enough money for your extra bills or unexpected expenses? Do you have enough liquid money before your next payroll? These kinds of questions are critical for you to know if your financial situation is enough for you at the moment. Once you realized that you’re not earning enough compared to how much you’re spending, then it is better to look for other sources of income. Indeed, it is easier said than done, however, recognizing the need for it is the first step to make a change. Being unaware is one thing, denying reality is another. With a budget plan on hand, it is easier to spot if your financial situation is ever declining, neutral, or increasing. Therefore, a budget plan is essential for you to be able to analyze your financial state.
5. Schedule Debt Payments or Repayment Schedules.
If you can get the opportunity of paying with the less interest incurred, of course, it is always better to pay your debt on time. Of course, it is not advisable to pay in bulk either since your budget plan will be significantly affected, especially if you are having difficulty at the moment. Always remember that your most significant priority cannot be overlooked; hence, the need to schedule your debt payment is vital especially when you are living with a tight budget.
6. Make cutbacks to your expenses.
The hardest challenge when budgeting is – cutting back your expenses. With so many “wants” these days rather than “needs”, we often struggle cutting back with spending for something we don’t need. However, when you’re tight with money, eventually, you will need to cut back your expenses.
That is why, for the sake of a better financial situation in the future, it is critical for you to cut back your allocated budget for your expenses so that you can set aside more for your debt repayment, emergency funds, and savings. “Endure” is the keyword for this part of budgeting. It will be very hard to stick to but it will be very rewarding in the end, so, do your best!
7. Make extra income.
Easier said than done, we know, but trying is better than not doing at all. Most often, low-income people look for extra side-jobs to help with earning more money. Whether it be as simple as babysitting, online paid for clicks, taking surveys, writing articles, or delivery service, money paid is money earned. And, what’s best with having money is that you can allocate more for your budget plan. Nothing is ever easy when it comes to budgeting but if you spare the effort in doing so, you will eventually see the difference in the future.
Of course, if you’re capable enough, you can also try investing. However, not everyone is adept at this, that is why it will be better to research and ask a professional in case you need help with analyzing which ventures are profitable or not. Feel free to download this Dividend or Income Generating Assets Financial Model Template as a tool to help you with tracking investments. This template will be providing you a tracker for all your income-generating assets throughout your retirement days.
8. Prioritize handling your Debt (especially credit card).
These days, almost everyone owns a credit card and as a result, one can get in too deep with their debt. That is why, when budget planning, it is crucial to prioritize the payment of your debt rather than let it collect interest over time. But of course, the repayment is not the only priority but also to change your habit of spending.
A credit card is like a big temptation for most holders since it gives them the idea that it is okay to spend without minding the payment at the moment. Now, that is the trick. Using the allure of spending now, pay later, it is inevitable that a lot of people get in debt and spending over the budget. The worst part is when failing to pay on time will incur interest steadily until the amount owed will be doubled or even more.
What you can do though is to adjust your spending habits and stick to your budget. Even better is to stop using your credit card whenever possible. Only when really necessary will you even touch it, this way, you won’t have a need to go over your intended expense and be able to avoid more debt incurred.
9. Savings Rule is a must, but it will not be your number 1 priority.
When living paycheck to paycheck, it is eventual that you will not even have enough money to keep for your savings. Indeed that setting aside for your savings is very important according to the Savings Rule which is a budgeting rule on how to save money effectively. However, according to your priorities, your savings will most likely be the last one to consider until you have enough income to settle all your prioritized expenses.
It may sound too harsh and reckless, but if you’re broke, your choices are limited. This doesn’t mean that it will stay like that since the more effective you conducted your budget allocation, eventually, you will see the results in your tracking report and there won’t be any problems with setting aside some money for your savings account.
Of course, there are other ways to ensure that you can set aside some for your savings such as looking for other sources of income. The more income you get, the more you can allocate for your budget plan. Though others resort to further skimping on their “fun expenses”, it is indeed effective but the negative impact it gives to the individual will be too severe unless it is by preference. That is why, rather than putting a tighter grip on your wallet, it is still best to fill your wallet more to accommodate your needs and expenses without having to suffer.
10. Stick to the Budget Plan – The most important point once you have a budget plan.
It is undeniable that some people who created a budget plan went into relapse and went over their budget. You might say it happens. But, this kind of mistake is a wrong decision since this will only set yourself back and make things worse for you. The need to stick to your budget plan is a critical part of your financial management. Therefore, you need to think twice before you spend about anything.
Again, easier said than done, but you might be surprised that despite the hardship it will cause you, your determination will further strengthen by the possibility of living a better lifestyle in the future. When you’re tight with money, nothing is impossible, but of course, it is better to start budgeting earlier than later. Therefore, begin to create a budget plan for yourself or your business now to ensure that you will have enough resources in the future.
There are many ways to save money on a tight budget, however, it is not the best way to budget money which you should focus on. The main point is if you can stick to the budget plan which you painstakingly created for the purpose of managing your finances. Basically, budgeting is just like the saying, “Where there’s a will, there’s a way”. Meaning, everything will only work if you have the determination and the endurance to keep up with your plans.
We hope that the list above will give you an idea of the best way to budget money when you are having a hard time financially. Here are example Budgeting financial model templates for Personal Financing which you can download to use as a base to start with or as a reference as you build your very own Budget plans.