Budgeting tips when you’re on a low income.

Good money management can mean many things, from living within your means to saving for short and long-term goals, to having a realistic plan to pay off your debts.

If you want to get on top of your finances, a budget is a really good way to start. It’s just a record of money you have coming in (from things like your salary or wages, pensions or benefits) and payments that you make (such as your rent or mortgage, insurance and Council Tax as well as living expenses and regular and irregular spending). Lets have a quick preview at some of the points below:

Checking where your money goes: If you’re spending more each month than you are getting as income, the next step is to look more closely at where your money is going and where you can cut back. Even small amounts – for things such as magazines, sandwiches at lunchtime or takeaways – can add up.

Keep a spending diary: Keeping a spending diary is an effective way of seeing exactly what you spend your money on. Try making a note of what you spend for at least a month (including even small purchases). If you can do it for even longer, you’ll get a fuller picture of what you spend your money on.

Once you have a clear picture of where your spending is going use our tips and tools below to see how you can make savings.

Paying off loans and credit cards: If you have loans or owe money on credit cards it usually makes sense to pay off the debt that charges the highest rate of interest first – it’s the fastest way to clear your debts. Knowing this is useful if you have several different debts charging different rates of interest, such as:

• store cards, which normally charge the highest rates of interest
• credit cards
• personal loans from the bank, which normally charge a lower rate of interest than credit or store cards

It is important to make sure you don’t break the terms of any of your agreements. So even if you’re focusing on paying down another debt, you must pay at least the minimum on any credit cards and your monthly required payments on any loan agreements.

 

Set a savings goal: Some people find it hard to get motivated about saving, but it’s often much easier if you set a goal. That way, rather than thinking about the money you are setting aside each month, you can focus on what you will be able to do once you’ve reached your goal.

Your first step is to have some emergency savings – money to fall back on if you have an emergency, such as a heating boiler breakdown or if you couldn’t work for a while. Try and get three months' worth of expenses in an easy or instant access account. Don’t worry if you can’t save this straight away, but keep it as a target to aim for.

Once you’ve set aside your emergency fund, possible savings goals to consider might include:

• taking a holiday without having to worry about the bills when you get back
• having some extra money to draw on while you’re on maternity or paternity leave, or
• buying a car without taking out a loan.



I’ve tried to explain as best I could that being on a budget does not automatically mean you have to cut out every single fun thing you’ve ever done, or will do in your lifetime. It is about taking control, understanding where your money goes, and realizing what you value in life.

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Ray Audu.