How to Make the Most of Your Limited Income
Budget the Income
Budgeting your income is the best way to start. People sometimes overlook this simple idea which prevents them from getting out of whatever hole they may find their self in.
For some people that may have never budgeted their money before this is the easiest layout to follow. It doesn't take much find where your expenses fit in.
Calculate Your After-Tax Income
Calculating your after-tax income will give you your take home money. This is the money that you have left over from your paycheck after federal and state taxes have been taken out. Depending on where you work and what plans (health care, life insurance, 401k, retirement) you have more deductions will be taken out giving the total take-home amount to be lower.
50% = Needs
Now that you have your take-home income amount we can now work on where 50% of your check will be going. The needs are just that they are what you need to go about your day. Most of us will have needs like these
- Housing - Rent or Mortgage
- Utilities - Water, Electricity, Waste, Phone, Internet (try to keep this with only essentials)
- Transportation - Car Payment, Gas, (anything that gets you from point A to point B)
- Debt - Credit Cards, Loans (anything you owe)
- Food - Groceries (any food cost)
30% = Wants
This is where you can get a little crazy. Wants will be anything that you want, whether it be
- Dining Out
- Memberships or Subscription
The main thing to keep in mind here is that you have to live within your means remember that you only have 30% of your paycheck to dedicate to this group. Try to make the most out of it without going overboard. Exciting 30% will start to pull money from other groups which could start to dig you into a hole that you may not be able to get out of.
20% = Saving and Repayment
Here is the more important chunk of your paycheck, here is where you can start to change your life. Here is where you can start to put money away to start building wealth, set up savings or even put more money to pay off debt.
Saving - what you are putting to prepare yourself for the future
- Emergency fund
- Retirement fund
- Investment accounts
Debt Repayment - payment to your debt that is over your minimum payment. Every bit of debt whether its credit card, mortgage, or a car loan will set a minimum amount that has to be paid every month this will fall into the 50% bracket. Debt repayment will be any amount that pushes past this number, helping to get the balances lower soon. This will also mean that you are losing less money to interest but that's a different story.
Budget Set Now What
Follow your own situation to get the most out of your money.
Play with the brackets
Now that you have your budget set you may be wondering what do I do now. Once you have the basics down you can start dialing what "YOUR" needs are what your wants are and what you want to put into saving. For some people, 50% may be too much for your needs if you are one of those people good for you. for other 50% may not be enough.
If it's not enough you need to look over your expenses and see what you can change to bring the number down, if you can't that may be a sign that you may need to look for a better income source or maybe even side income.
If it's enough what you can do is start to move some of the leftover money into savings or even into the want bracket this can help plan for a trip or even pay off any debt that you may have.
You do you
The last thing I want to tell everyone reading we all have the power to get our lives together. I spent a good amount of time not knowing where my money was going and I was living for some time out of my means. This meant that I was not putting money away for savings yet alone putting money away to paying off the debt that I owe. This all changed when I set up a budget and was able to see everything coming in and out. Try this out and see how it may change your life.