How To Budget When You’re Broke

You’ve made your budget. You’re excited to get on track. Everything looks great… until something happens. Your whole plan comes tumbling down before you even get out of the gate.

Sound familiar?

If this is you, don’t get discouraged. This is waaaay more common than you think. In fact, getting your budget off the ground is one of the hardest parts of fixing your finances when you’re broke. But, if you can just make it through those first few months, if you can just play catch-up and get ahead, you’ll set yourself up for a lifetime of financial fitness.

But, how can you get ahead when you’re already behind?

Great question, and it’s one I’m sure many of our other readers have. So, let’s dig in!

Budgeting When You’re Broke

If you’re making a budget and still struggling, it can be totally demoralizing. Trust me, I get it. But that doesn’t mean you should swear off budgeting! In fact, do the opposite: Cling to that budget for dear life… just make it better!

Falling behind almost always means one of two things are happening:

You have an income crisis.– This means that you don’t make enough money to cover your basic living expenses – which is usually the result a sudden loss of income (like losing a job). These are harder to fix. The best solution is to cut your expenses and search for ways you can make more immediately (a new job, side hustle, part-time work, etc.).
You have a leaky budget.– This is much more common. In Jennifer’s case, as with the majority of people, her household income is greater than her expenses. It could be the result of budgeting errors, conscious or unconscious overspending, living beyond her means, or not budgeting at all. Luckily, this is relatively simple fix.

How to Find the Holes in Your Budget

To plug a leak in your budget, you need to find out where the holes are. Where is your money going? In Jennifer’s case, that means taking a look at the data. She should be able to easily identify the problem by tracking her spending.

Tracking your spending is exactly what it sounds like: You track each and every penny you spend during the month. This can be as simple as grabbing a sheet of paper and writing it down.

Seriously, just take a piece of notebook paper and draw a line down the middle. On the left side, title the column “Expense.” On the right side, title the column “Amount.” Then, jot down the amount of everything you buy throughout the month. Go back to last month and track what you spent there, as well. Get it all down on paper so you can see it right in front of you.

Once you’ve tracked your spending, total it up and compare it to your budget. (Personally, I like to compare my expense tracking and my budget about once or twice a week!) You should be able to see exactly where you went wrong or underestimated your expenses during the month. Make the adjustment on your next monthly budget, and vow to be more accurate from there.

How to Get Ahead

Now that you know where the problem is, it’s time to take action!

Let me be clear: This is going to suck. It’s going to be a painful. It probably won’t be that fun… until you start seeing the money pile up. Then, it’s going to get really exciting.

Think about it this way: If you had to experience a little bit of pain for a few months so you could finally get ahead, setting yourself up for financial success the rest of your life, would you?

Yeah. That’s what I thought. Let’s keep moving.

Step 1) Start a Written Budget

If you haven’t started a written budget, do it now. Like yesterday. In my opinion, a WRITTEN budget is THE key to getting ahead with your money.

Step 2) Cut Your Spending

In Jennifer’s case, she needs to play a little catch-up by getting (and staying) current on her bills. She’s already doing a a written budget (Woo-hoo!) and is now tracking her expenses. If you’re behind, make sure you’re doing the same.

Now comes the tough part: In order to catch-up, you’re need to cut your expenses like crazy. I mean cut everything. You need to live on a “bare bones” budget until you’re back on track.

Cut, cut, cut. Chop, chop, chop. Get out the butcher knife and start whacking away at those expenses.

Seriously, cut everything. No eating out. No fancy meals. No going out with friends. Nothing.

Look to cut bigger expenses as well. That means cable TV, cell phones, kids activities. Every single extraneous expense needs to go until you get caught-up and ahead. The more you cut, the faster this works, and the more likely you’ll succeed.

Step 3) Review Your Budget

Alright, so you’ve cut everything you could. Now it’s time to review your monthly budget.

Learning to think in terms of the month is going to be beneficial down the line when you start using last month’s income to pay this month’s bills. (I know that seems impossible right now, but you’ll get there eventually!) Determine when you get paid and when your bills are due. If you get paid twice a month, make sure you have enough to cover your bills for that half of the month. If not, call some of those companies and ask if they’ll move your due dates. That way, your bills are spread out a bit more.

Step 4) Create a Beginner Emergency Fund

This is the technique that’s going to keep you from falling behind, so pay careful attention!!!

Falling behind is just a symptom of the real problem – living too close to the edge without any savings. If your furnace goes out and you don’t have money saved to fix it, of course your budget is going to collapse! You need a cushion to keep that from happening.

An emergency fund is that cushion. It helps you pay for emergency expenses without “robbing Peter to pay Paul.” You need it, and you need to start building it now.

Remember the money you saved by cutting your spending? All of that money (and anything extra you find lying around) needs to be put into your emergency fund until you have $1,000 saved. Keep socking all your extra money into this fund until you’ve hit that goal.

Step 5) Sticking to Your Budget

Now that you have your $1,000 emergency fund in place, keep watching your budget, tracking your spending, and living below your means. Be sure to compare your spending and your budget a few times a month – or do it a couple of times a week, like I do.

At this point, I’d also look at some of your long-term debt and consider cutting it. Is a car payment holding you back? Is your mortgage or rent too expensive? How much credit card debt do you have?

Better yet, shoot to become debt-free. Pay off your debts quickly using a debt snowball or debt avalanche; then, you’ll really feel like you have some disposable income! Eventually, you’ll want to have 3 to 6 months of expenses saved in your emergency fund. Additionally, you’ll want to have enough saved so you can pay this month’s expenses using last month’s income.

That’s a long ways off, but just realize it is possible. You can do it, but it takes time and dedication. For now, focus on cutting your expenses, saving that $1,000, and getting back on track! Take it one step at a time, and you WILL get there.

Wrapping Up

Falling behind can feel overwhelming. It might seem like there’s no way out, that you’re destined to be broke forever. Nothing is farther from the truth.

You can do it! Countless families have found themselves in the same situation as you. If you’re here, you’ve already taken the first step.

Now, work the system, plug the holes in your budget, and save that $1,000 beginner emergency fund. Once you do, you’ll be prepared to meet most hiccups that derailed you before. And when you can take care of those unexpected expenses, you’re well on your way to leading a financially healthy life!