How to Create a Budget When You Have No Money

How do I budget when I'm poor? If I'm on low income? If I can't pay my bills?

This is such a tough question. Having personally struggled financially in the past, my heart breaks when someone asks this in one of our live workshops. I know how tough it can be when things are that tight. I SO want to have a simple, easy answer that fixes everything. But that’s why it’s a tough question, there is no easy answer. I can’t say, “Oh just click on this button and you’ll be all set!”. I can’t say, “Oh, this rule will easily address that issue right now.”

This question is really one of two questions:

1. What do I do when my expenses exceed my income?
2. What do I do when the bills arrive before the money?

There are only two options: You either need to cut expenses or increase income. That’s it.

Start by cutting spending.

YNAB can really help with this. If you track your spending, you’ll see where the money is going and you’ll begin to notice places where you can cut back. That’s what happened to me. I couldn’t believe how much I was spending on eating out! I was essentially bleeding in that category. Tracking it created awareness and awareness created better decisions. I didn’t need a financial advisor to tell me to cut back there. Once I had the information in front of me in one place (YNAB’s Budget Screen), it was obvious.

I can not stress how helpful that was. Track your spending. Even if you feel you are assigning money to a category and then immediately spending it – you are still creating awareness. It’s worth it.

What should you do in the short-term?

First, If a bill arrives and you really can’t pay it, you should contact the creditor and work something out.

Communication matters. The worst thing you can do is ignore it. Give them a call. I’ve found most companies are willing to accept a smaller payment over no payment at all.

You’ll feel better if you call them and work out a solution. Really. You will. Facing it puts you in control, and knowing there’s a workable plan in place will reduce your stress about it.

Second, only budget the money you have and prioritize like crazy.

Start by budgeting for immediate needs. You’ve got to eat but you don’t need to eat out. You also need gas in the car to get to work. (Getting to work is key since that creates more income.) So budget for immediate needs then start budgeting for bills. Which bills need to be paid right now? out of this check? Budget for those. Maybe budgeting for rainy day funds or the buffer aren’t possible right now. Take care of what’s in front of you first.

Third, avoid using your credit card to get you by.

Think short-term pain, long-term gain. Break that habit as quickly as you can. Moving your mindset away from leaning on debt will help the shift to working with what you have.

What if cutting spending isn’t enough?

After a while you’ll have a record of your spending. At that point, you may find yourself in the situation I was in a few years back. I’d cut spending like crazy and I stopped using credit cards. This stopped the bleeding and then I was able to start working on debt repayment. But growing rainy day funds and a buffer were slow at best.

I remember sitting at the computer staring at the budget one day. I was trying to shift funds around to fix something. There was no wiggle room. That’s the first time I heard the budget speaking to me:

“Erin, you need more money. You aren’t earning enough.”

There was nothing else to cut – at least not without a negative impact on my quality of life. This was a hard pill to swallow, but at least I was making this decision armed with good information. I knew it was what I needed to do.

Since I was teaching music at the time, I started offering music lessons in the summer time. A lot of music teachers do this over the summer, and some of my students had asked about it in previous years. I set up a schedule that had me teaching out of my house two days a week for eight weeks of the summer school vacation. I put together an information packet and gave it out near the end of the year. I charged $40 an hour and $25 for a half hour lesson. This generated a couple thousand dollars over the summer. That helped me make progress on savings goals and sped up the debt repayment. It was also super fun.

I did this for a few summers and then ended up working for YNAB part-time and that replaced the summer teaching. So…you could say acknowledging the need for more income set me on a path that led me to a career change and new job I love! Just because something starts out as bad news (Yikes! I need another job.) That doesn’t mean great things can’t come from it.

Think about what you could do. Everyone can do something! There are lots of ways to increase income. Mark said in a recent post that budgets are bones and income is muscle. Maybe that’s what your budget needs – a little more muscle.

Maybe cutting back will be enough, who knows? But don’t operate in the dark. Track. Prioritize. Tell your money what to do. You’ll be surprised how obedient your money becomes once you do.