Money, of all the things in life money is the most elusive, one minute you have it the next you are hovering under the poverty line. What is even more interesting is the fact that of all the subjects taught from lower grade to high school, none includes financial management or the basic skills that one can use to manage their money effectively. Yet we go to school so that we can be financially independent and instead end up debt dependant.
The current tough economic times have literary forced people to live from salary to salary; therefore, becomes difficult to live a fulfilling life, because when the paycheck comes you have to clear an outstanding debt and borrow another one that will sustain you to the next payday. Permanent Jobs are also not forthcoming, so the issue of benefits does not exist and with the many casual jobs you don’t know when you will be forced to quit.
Besides, when it comes to managing money there is the vicious cycle of impulse buying, spending money without a budget, or spending more than you earn and spending money that you don’t already have. The list is endless and the worst of it all is borrowing more than you earn from different sources, in this excerpt, therefore, we will learn a few tricks on how to budget money on a low income.
How to Budget Money on Low income
Life is indeed funny, do you realise that people who have high income need financial management skills more than the low-income earners. Picture this you live a basic life and have everything you need for comfort and even a savings account that grows fat by the month.
Due to restructuring you get a promotion and the office at the corner and wallah your life takes a turn, you now want a posh car, a posh home, you take your kids to the most expensive schools, you shop in the most expensive retail stores, you even start wearing designer clothes and eat out more often.
So now that money is coming in surplus it is also barely enough because funding that kind of lifestyle will leave you with nothing. So you take a loan with plans of funding it to buy a car and a house and boom the company goes under. The logic here is everything is gradual and takes time and planning, especially when it comes to matters money.
Budgeting on Low Income
The first and most important thing to look at when you get paid is to monitor what you are spending money on. This might not be easy because you will have to keep receipts of what you buy whether it is clothing, food, home bills, gas or groceries. Now with this type of breakdown, you will be able to determine where most of your money goes and whether it is necessary, if not how can you cut on the costs.
A lifestyle change will thus be necessary, and now that you will be having some extra cash, when the pay cheque comes you might want to save some of it, or get down to paying bills. However, if you have an existing debt it would be best to pay it off first, so that you can start saving on a clean slate.
When you start saving, decide on an amount, then have a goal, something like a project; the reason being it will give you the motivation to save diligently every month. Now that our ducks are finally coming in a row, we need to come up with a budget, and as you make one you will be able to see whether it is within your income or above.
Coming up with a budget should not make your family dysfunctional, why? You may ask. See the thing is when you make everyone see the sense in cutting costs they will gladly join the wagon or even find ways to help out. Budget making should, therefore, be a family affair, let people contribute and see the logic of cutting costs and the importance of attaining the set objective as a unit.
You will, therefore, have to adopt a modest lifestyle, start cooking in, workout from indoors, cancel the gym subscriptions, and keep of junk. Forego the car and walk from time to time to exercise and save on gas, use discounts or coupons, don’t be too proud to use coins, and keep off the expensive eateries.
Ever heard of impulse buying, it is another perennial disease that will attack you, if you go shopping without a budget. So we do want to get the basics even when shopping for groceries, go to shops that offer reasonable prices and keep an eye out for special offers and discounts. Goal setting as we discussed earlier gives one the motivation to save even when they don’t feel like.
So when the year starts set goals and dedicate an amount and work towards it, and if things are still strained, find a side hustle, and don’t say there aren’t any because the options are endless. For one you could start an eCommerce website, this one doesn’t require a lot of capital. You could do photography, freelance writing or graphic designing. The essence here is to find something that you like so that you don’t have to force yourself to do it, but rather enjoy doing it.
The extra income from the side hustle can be used to fund the emergency fund, another thing that you could do to get the most of your low income is to window shop, always be on the lookout for the fairest of prices. Celebrations don’t miss in life whether birthdays, weddings, anniversaries, funerals, Christmas or the New Year.
Some of the above events will just pop up unexpectedly and if you don’t have a budget to cater to the expenses, you will find yourself spending your savings money or denying yourself some of the basic things to cater to the extra expenses. Lastly, you might want to forego the digital method of managing funds and adopt the traditional envelopes.
So on top of the envelope, you will indicate what you intend to do with the money, put in the envelope money that you wish to spend and on what, so that when it finishes you know that you have to wait for the next pay cheque. Keeping to your budget might not be an easy affair so it would be best if you kept tabs on your weekly expenditure.
Budgeting and saving on low income
How to avoid and deal with debts
Careless spending will certainly plunge you into debts, and recovering is not easy, but achievable if only you keep tabs on the money that comes in and avoid borrowing huge amounts that you have no idea of how you are going to pay back. Knowledge of your account balance and monitoring your spending pattern is the first step towards financial freedom.
Just out of curiosity why do low-income earners take credit cards, and not one but two or three? You know it beats logic but since they already have them they might want to start by clearing off the most expensive followed by the ones with the smallest amounts. Clearing your credit card debts is not a walk in the park and most of the time you will end up reverting to the careless spending habits.
The good thing, however, is that creditors are always up for negotiations and will want to help you settle your debts. Individuals can also get expert help and one such institution is the National Debt line, which helps individuals prioritise their needs, negotiate with creditors and create actionable repayment plans.
Debt prioritisation, first let us agree that people have more than one debt that they have to settle, therefore, the best that they could do for themselves is to prioritise. Debts do have categories, for example, we have secure debts, which are the types of debts that have been backed by an asset and in most cases for collateral purposes.
When you take a loan to purchase a piece of land, the lender whether a bank or other financial institutions will place a claim of ownership so that if you don’t manage to make the full payment, the land will be repossessed and sold to get the funds back.
There is also the Unsecured Debt and this one doesn’t have collateral, so here you will just sign a contract, which will be used against you in case you fail to pay the debt, remember though that this type of debts come with high-interest rates. We also have the Revolving debt, and this mainly concerns the credit cards.
A lender will thus give a limit on the amount you can borrow, lastly, we have the Mortgages, and this is the heaviest burden on UK Citizens. They are the loans meant o purchase homes, and normally have a low-interest rate. Their term of payment is usually long, sometimes up to 30 years to make them affordable on a monthly basis.
The above types of debts should, therefore, be cleared first because they carry serious consequences when delayed or in case of failure to pay. Casual labourers don’t have much going on for them as compared to permanent employees. So for the latter, be sure to check and claim your benefits, some come as one-off payments as regards a particular circumstance like going to work out of station.
The Pains of Borrowing Money
Loans are not affordable as they always come with high-interest rates; take for example the payday loans, you will receive a very small amount of cash, but the interest that you pay will be high and might consume almost all of your pay. Another money trap is the credit card and its ability to offer instant gratification.
The intense pleasure that is derived from swiping the credit card is not comparable to the pains of paying back the money. These are, therefore, some of the reasons why people fail to achieve their long term goals as they would rather submerge themselves in two minutes of fame, a thing that actually rips off finances.
So what other alternatives to money do you have?
The first thing that people need to do before they resort to borrowing money with high-interest rates is to ensure that you are getting all the benefits that they are entitled to. And one sure way of doing this is by using the Tun2us benefits calculator that is if you want things done professionally or maybe you are not sure of how to calculate your benefits.
Take an Advance- As we approach month-end, many employers understand that their employees may even lack money for a train ticket or for gas and will gladly give you an advance off your salary.
Join the Credit Unions- Credit unions are rarely for-profit and are meant to help people save and borrow money. However, you must also meet the criteria for eligibility and the best thing is that there are over 380 credit unions for you to sample before you can choose the one that suits you best.
E-commerce stores– Online stores sell good quality refurbished products such as electronics and furniture among others, instead of taking a loan to purchase the above you could scout the reputable online stores to make sure that you get a good deal for example eBay.
To avoid being a prisoner of your own desires, you could also get assistance from the food banks before your paycheck arrives. And here you will have to ensure that you qualify to access the services in your nearest branch, after which you will get a food voucher. The food package normally contains nutritious foods most of which are tinned and dried.
Money matters are not taught in school we, therefore, learn through the mistakes that we make as we interact with large sums of cash. Besides, people love to spend money and have a problem of sticking to their set budget, so if you are one of them just use the online financial manager application that will help keep track of your spending.