Budgeting is a critical pillar of money management and can help you put your finances in order when done right. However, it can be tough to do if you have two incomes but it is even more difficult when there is only one income in the household.
Most budgeting advice will focus on a nuclear family setting where there are two people bringing in income and this works well but what about those who are single or single parents or those who have only one partner who works outside the home?
This blog post will show you how to budget on one income so that you can save money and build wealth.
Get to Know Your Income
Knowing your income is the most important step in understanding how to budget your finances because it is the backbone of your finances.
You should know how much money is coming in from your job or business and the time-frame when this money is coming in.
Look at your paystub and see how much you have coming in after taxes and whether you are paid monthly or bi-weekly. Once you know these two things, you can move on to the next step.
Track Your Expenses
After knowing how much you are bringing home, you need to start paying close attention to your expenses. Make note of all your necessary, non-negotiable expenses like your mortgage or rent, food, utilities, and other necessities that will keep the lights on.
Look at your consumption patterns, are you running a deficit and spending more than you earn, or are you living within your income? This exercise will help you to get a full picture of how you are situated and put you in a position to make changes if needed.
Remove Any Unnecessary Expenses
Once you have a handle on your expenses, you will notice that there are expenses that are not necessary that you can cancel or remove.
One big expense, for example, is subscriptions. If you realize that you have a lot of subscriptions that you are not using, then now is the time to cancel them and put that money to good use.
Take a hard look at your expenses, and then decide what needs to go and what needs to stay. This will help you to free up money that can go toward savings or your investments.
Know Your Debt
What does your debt look like? Do you have credit card debt or student loans? Do you know what your interest rates are and the time-frame to pay them off?
If you are on one income, debt can take a huge chunk of your income and may cause you to be in financial duress.
Look at your debt statements and make note of the exact amount that is owed, the interest rate and how long you have left to pay off the loan.
Once you have those three pieces, call your debt provider and ask for a lower interest rate. You can also ask for any programs they may have to help you to pay off the loan much quicker – whether it’s reducing the amount owed or an incentive program. You never know, just ask.
Also, allocate extra money toward your loan payments each month. Whether it’s $20 or $50, make that a priority as it will help you pay off your debt much quicker.
Ensure that You Have Insurance
Since you are on one income, it’s very important that you have insurance because it is critical to protect your earnings especially if you have dependents.
Whether it’s disability insurance, term life or whole life insurance – ensure that you have some form of insurance to give you peace of mind.
Also, the earlier you get insurance, the better it will be and if you are a non-smoker you can also get a good rate on insurance premiums.
Allocate Money Toward Savings
After you have looked at your income and expenses, you will see whether you have money left over every month or if you are running a deficit.
If you are overspending and you have nothing left over, then you must look at either cutting your expenses or increasing your income.
Now as you build your budget, you must and this is absolutely necessary – you must allocate some of your money to saving for the future. Knowing how to budget on one income is a major step in meeting your financial goals.
Start saving for an emergency fund, this will be the amount of money that will be your source if you have any emergency expenses like your car breaking down or you have to travel because of a family emergency. Once you have about 3 months of your income saved up – you can start looking at other savings goals.
Start by saving what you can afford and open a high interest saving account and start to save money in that way.
What to Do If Your One Income is Not Enough
After you have looked at your income and expenses, you will see whether you have money left over every month or if you are running a deficit.
If you are overspending and you have nothing left over, then you must look at either cutting your expenses or increasing your income.
Doing a budget may also show you that your income is running short of your expenses and you may need to make some changes.
Take a hard cold look at your overall financial life – do you need to make behavioural changes to rein in your expenses? Are do you need to find a better job? Maybe you need to negotiate with your employer and ask for more money or you may need to brush up your resume.
You can also explore starting a side hustle or getting a second job to help pay down your debt or to save more money. Look at different options so you can get on the right track in your finances.
My hope for you is that you will be in a better position to budget on one income so that you can build wealth and have a plan to secure your financial life for the future. Knowing how to budget will help you to get yourself on the right track and help you become a boss in managing your money.
Tell me in the comments, are you on one income and which of these steps will you be taking?
Photo credit: Katie Harp
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