The struggle of living paycheck to paycheck with the constant battle to make ends meet is not for the weak! It's such a huge weight to carry and you're not alone in this journey.
Sprinkle of Care totally gets it, we've been there! This blog post offers you a safe space to get started with practical budgeting techniques for beginners. Together, let's take the first step towards a brighter financial future.
The Struggle of Saving Money on a Tight Budget
It is very frustrating and discouraging when you've reached a seasoned age where you're supposed to "have it together" financially and yet, you're still struggling every single day in today's economy to meet your dreams of achieving financial stability.
Many of us are in our mid-late 20s, 30s and 40s, and still juggling on how to efficiently pay our bills, rent, and daily expenses. We almost look like juggling clowns in a circus act. Every month, you watch your paycheck vanish, leaving you with a sense of failure and helplessness as an adult. Every day that goes by, you long for a life where you can save and invest in your dreams (or at the very least live a comfortable lifestyle for yourself and your family), but the broke-status cycle seems unbreakable.
Envisioning a World Without Living Paycheck to Paycheck
Close your eyes and imagine a world where financial stress is a worry of the past. Picture yourself in a state of mind where you have a safety net, where you can confidently plan for your future, and where an unexpected bill will not make you cringe. Feel the weight lift off your shoulders as you embrace a lifestyle of financial freedom, where you can go after your vacation or boss girl status goals without constantly checking your bank account.
With this vision in mind, let's discover practical budgeting techniques for beginners like you who may be living paycheck to paycheck but looking to transform your financial future with actionable steps and heartfelt support from Sprinkle of Care.
Step 1: Embrace Your Financial Reality
Take an honest look at your income and expenses.
Track rounded pennies you spend for a month to identify patterns.
Facing your financial reality head-on is scary, mainly because deep down most of us know that we're spending a lot more than we should. And, I don't know about you, but there is a little imaginary person on my shoulder that sometimes whispers in my ear "You had a hard week! Treat yourself! You deserve it!". But it's a crucial step towards gaining control over your finances.
Start of by having a general idea of what your pay stubs looks like each pay period - across any income stream you receive. Write down what your monthly income (money coming in) looks like as well as what your monthly expenses look like (money coming out), including credit card statements and miscellaneous expenses (yes, girl, write down the cost of getting your nails done, lashes, brows, daily Starbucks lattes, etc.).
Having this information in one place will give you a birds eye view of what your finances look like for the month. Since you're in the beginning stages, don't get too caught up in tracking every single penny.
Personally, tracking every penny at the very beginning when being new to financial literacy has increased stress and overwhelm. As a beginner, the less overwhelm you experience, the less prone you will be to run away from numbers and ignore accountability of your spending habits.
A beginner tip is to round UP for expenses, round DOWN for income. While this won't give you a full accurate picture of "every penny" spent (like most financial gurus often recommend), it will still help with building the muscle of financial literacy and give you an idea of where the money is going on the monthly basis. Detecting patterns will help you figure out where you're overspending.
Step 2: Set Clear Goals
Define short-term and long-term financial goals.
Allocate a portion of your income towards each goal.
Short-term financial goals are specific objectives that you aim to achieve within a short period of time. Normally, the time period is within weeks, months or up to a year.
These goals are often based on immediate needs or wants and can be part of a bigger goal as a stepping stone towards a long-term goal. An example of a short-term financial goal is to allocate an extra $100-$200 per month towards paying down a credit card balance within 6 months.
Long-term financial goals are objectives that you aim to achieve over a longer period of time. This could look like several years or even a decade. These goals tend to be "bigger" in terms of major life events or achievements. An example of a long-term financial goal is buying a home within the next 5 years.
If you are someone who lives paycheck to paycheck, careful planning and prioritizing how you're allocating your money is very important. For a short-term goal such as paying off a credit card debt, you may need to focus on paying off high-interest statements to reduce pesky interest charges.
For a long-term goal, such as buying a house, you may need to focus on a gathering a target down payment amount within a specific time frame. For example, $20,000 within 5 years.
To properly allocate your money and achieve your goal in 5 years, you'll need to divide the total amount by the months equivalent to 5 years (60 months), to figure out how much you would need to save monthly ($333).
Step 3: Create a Realistic Budget
Categorize your expenses (e.g., rent, groceries, entertainment).
Allocate a specific amount to each category based on your income.
Creating a realistic budget is a critical tool to take control of your finances and work towards your financial goals.
Label your expenses so that you can begin to put your finances into categories. As you get more comfortable running numbers, you can expand on those labels or categories. For rent/mortgage and utilities, label them as fixed expenses. You can include any other bills where you know the amount doesn't change month to month.
For expenses that are subject to change monthly, label them variable expenses. This can include groceries, gas, etc. You can branch out if you feel comfortable doing so for other miscellaneous items, such as nails, lashes, restaurant dining, etc.
For categories that are non-negotiable, meaning those are areas that you need to take care of every month at any cost, make sure that you allocate a specific amount of your income to make sure that those expenses are not missed.
If you're not quite sure how to get started with documenting your budget, there are budgeting apps you can look into that can help you get started. Some budgeting apps that can help track expenses, set goals and give you an idea of your spending habits include Mint and YNAB (You Need A Budget). Always do your research on available apps as some of them may only offer a free subscription temporarily.
You can also consider searching for excel or google sheet templates that can help you track income and expenses in a spreadsheet format. There are free and paid sheets out there that you can download.
For money allocation strategies, some employers and banks offer the ability to allocate funds through different accounts at the time a paycheck is direct deposited. Learn about these options by speaking to your employer and/or bank to see if automatic fund allocation is a tool you have at your disposal.
You can also consider incorporating the envelope system into your budgeting routine, which is a physical budgeting method where you allocate cash into labeled envelopes.
Each envelope will have labels for specific expense categories and once the money within that specific envelope is gone, you've exhausted the budget for that category. The envelope system is great for miscellaneous items that are negotiable or flexible throughout the month, such as beauty maintenance (leashes, nails, makeup, uh-huh...yes, I said it), dining out, leisure shopping, entertainment, etc.
Step 4: Cut Unnecessary Costs
Identify non-essential expenses and find ways to reduce them.
Consider alternatives like cooking at home instead of dining out.
Figure out what is a need versus a want. Needs are crucial expenses like housing, groceries, and utilities, that keep you afloat. Wants are more desire-based, such as dining out, entertainment, and impulse shopping, etc.
Ask yourself, do I need this or do I want this? (And be HONEST with yourself!)
Many of us overspend on things we want and we say we "need it" when we really don't, it just makes us feel less guilty at the poor choices we make because it makes us feel good in the moment to get the things we want.
Look at your bank and credit card statements and try to pin point where you're spending your money on a recurring basis. Ask yourself, are those recurring expenses a need?
If they are not needs, there is an opportunity to tweak your budget in those recurring expenses. For example, if you're dining out frequently, maybe planning your meals at home in advance can help minimize those costs by preparing at home more frequently.
An online tool you can use to help you with this step is Trim. It is mostly free (some features may have a cost) and it helps you analyze your spending habits while helping you pinpoint opportunities where you can save money. Trim provides actionable suggestions to reduce your expenses, which is great for people who are living on a tight budget but still seeking ways to save money.
Step 5: Build an Emergency Fund
Start small, but aim to save at least three months' worth of expenses.
Automate your savings by setting up regular transfers to a separate account.
If you struggle to save while living paycheck to paycheck, starting small in your savings journey will be beneficial. One crucial step is to begin building an emergency fund. An emergency fund is basically a financial safety net that gives you some cushion when unexpected expenses or emergencies smack you in the face.
Consider opening a separate savings account dedicated solely to your emergency fund. This will help minimize the urge of dipping into it for non-urgent expenses.
Automating your savings is a great way to progress towards your goal, even if you're on a tight budget. Three ways you can automate your savings include direct deposit allocation, weekly money transfers, or using round-up apps.
With direct deposit allocation, you can set up an automatic transfer of funds from your paycheck to the emergency fund savings account. This way, you don't see the money, which reduces your temptation to use it for other expenses.
With weekly money transfers, you would be transferring money from your checking account to your emergency fund savings account on a consistent basis. This requires more will from you and self-control as you will manually complete those transfers.
This can be as little as $5 a week, whatever your current situations allows you. Keep in mind that the more money you can allocate on a weekly basis, the faster you'll be able to achieve your financial goal.
But if you honestly can only afford $5 a week or month, don't stress. There is no shame on putting in tiny bits of money if that's all you can afford at the time. A little bit at a time will add up over time. So, don't lose hope, focus on your personal goal and keep pushing forward.
Step 6: Explore Additional Income Streams
Consider freelance work, a side hustle, or investing in a skill you can monetize.
Allocate this extra income towards your savings goals.
Exploring additional income streams can be a game-changer when working towards financial stability. Everyone has specific skillsets that can be monetized. Think about some skillsets you possess that could be in demand and invest in yourself so that you can improve those skillsets to do freelance work, consulting or start a side hustle.
Identifying your skillsets can sometimes feel stiffening if your mind draws a blank when you think about what you have to offer. If you have a job, guess what? Your employer hired you for a reason. Think about your profession and what the services you offer in exchange for a paycheck. Those services require specific skillsets.
If you don't have a job, that's ok! Think about hobbies you like to do and the skillsets related to that hobby. Take time to look into how to refine your skills and market yourself either online or locally to get that extra income.
For freelance work, you can join online platforms like Upwork, Freelancer, or Fiverr to offer your services to an online client base. To refine specific skillsets, you can use tools like Skillshare, a platform that offers a wide range of skills to learn and practice so that you can boost your marketability.
The key to success in increasing your income streams is to focus on skills you enjoy and are good at. This way, your side hustle won't feel like a burden in addition to your regular 9-5 job, and you can stay encouraged while you progress out of your financial situation and achieve your goals.
Conclusion
You have the power to improve your financial future. By embracing budgeting techniques for beginners and taking small steps towards saving money, you can take control of your finances. It's never too late to start even if you've never done it before and the sooner you start, the sooner you can progress towards that vision we talked about earlier in this post.
Remember, you are not alone in this journey. Celebrate your wins, no matter how small they are, stay consistent in tracking your progress and look for resources to help reach your stepping stones. While budgeting does mean cutting down on expenses, it's also about finding the best ways to align monthly spending with your goals and priorities.
As you reflect on your current financial situation, ask yourself: What dreams could you pursue if money was no longer a barrier?
What steps can you take today to move towards that reality?
Sprinkle of Care is here to support you every step of the way. Invest in yourself, you're worth it!
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