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Budgeting a Small Salary: Your 10 Step Guide to Success


To manage money on a small salary, set a budget that works for you and cut down on your largest expenses first. Prioritize your savings to prepare for your future, and find ways to increase your income over time. Follow the 10 steps below for budgeting success.

  1. Build a budget
  2. Lower your housing costs
  3. Lower your food costs
  4. Lower your transportation costs
  5. Focus on needs vs wants
  6. Save an emergency fund
  7. Save 3-6 months living expenses
  8. Pay down debt
  9. Save for future goals
  10. Increase your income

Budgeting a small salary may seem like an impossible task, but we promise it isn’t. A little discipline here and a strong strategy there can do wonders for your life. Finding the right budget and assessing your expenses can bring a sense of stability to your finances. Not only that, but you’ll even find room to begin saving for your financial future. It may seem scary to start, but dive right in to find out just how easy budgeting your salary can be.

1. Build a budget

Begin with a budget. There are many popular strategies out there, ranging from detailed spreadsheets to just saying “no” to frivolous expenses. The best budget is the one that works for you, your situation, and your goals. 

If you’re new to budgeting or need a good place to start, try a percentage-based budget approach. This is where you separate your monthly after-tax income into categories or buckets that help define where your money should go each month. These are set up in a way to help you pay for your expenses and set aside savings each month. Both the 70 / 20 / 10 and 80 / 20 budgets can be useful for those who don’t have a lot to spend.

If you’re more detail oriented, you might be interested in zero-based budgeting. This is a strategy to line up your monthly spend against your monthly income (income = expenses). You’ll set aside all the money in your paycheck for specific purposes, and spend it accordingly. At the end of the month there’s zero money left over (hence the name), but everything’s been accounted for. If you’re privy to cash, you could also apply this method by adopting a cash envelope budgeting system that works much the same way – just with cash and envelopes. 

2. Lower your housing costs

In order to live off of a smaller salary, you need to control your major expenses. The average American typically spends the largest chunk of their monthly income on housing. Set a specific target budget on housing and work to achieve it. If your monthly housing cost is $1,500, try to decrease it to $1,200. Then try to lower it to $1,000 or even $900. 

Focusing on your housing costs will give you quicker returns than if you were to cut back on multiple small categories of spending each month. Avoiding restaurants or entertainment could save you $50 a month. But cutting housing costs back 20% could be an extra $300 in your monthly budget all at once! Saving a few hundred dollars each month on housing could be thousands saved by the end of the year. 

It also might be helpful to relocate to a cheaper neighborhood or area. If you’re in a city, you could move towards the outskirts or find a nice area in the suburbs. If you own a home, you may try renting out an extra room or finding a roommate to help make your monthly payments.

3. Lower your food costs

Another major monthly expense are your food costs. One of the easiest ways to keep this down is to grocery shop and meal prep. You might be in the caught in the cycle of fast-food living, always rushing from one place to the next and buying your food along the way. Try making a meal you love in large quantities and portioning it out for lunches or dinners each day of the week instead. A conscious effort to think about your meals ahead of time will save your wallet and the pants that pocket it.

Pre-cook, prepare, and freeze your meals to grab them when you need them. Change things up by adding new spices or sauces to your favorite dishes. Find new recipes online or rent a cookbook from the library to try new cuisines. Once you get used to preparing meals regularly, you may find that you enjoy your time in the kitchen. It’s an easy way to bring friends and family together that won’t break the bank.

4. Lower your transportation costs

One of your other major expenses may be transportation costs. When finding ways to strategically bring down your housing costs, be sure to account for transportation as well. If you find a cheaper place to live but end up doubling your transportation costs as a result, the move may not be worth it. On the other hand, you may find comparable housing costs in a place closer to where you work. You could save money by walking or biking to your workplace while gaining the benefits of physical activity each day.

Try to find a sweet spot where you can lower your housing and transportation costs at the same time. Maybe your new place isn’t far from public transportation. You could take the bus to work and cut down on your gas bill. You may end up with some extra time on the commute to read, study, or work on a side hustle instead! 

5. Focus on needs vs wants

Your expenses are broken into two categories: your wants and your needs. Your needs are things you “need” to live off of, typically your major monthly expenses like housing, food, and transportation. They likely also include things like insurance, phone/internet, etc. Be careful not to blur the lines between your wants and needs.Things like streaming or subscription services are typically wants. Things you want are things that you can go without. When budgeting a small salary, you’ll need to prioritize your needs before your wants. Check out this article to learn how to avoid spending money while still living life.

6. Save an emergency fund

Nearly 40% of Americans can’t come up with $400 in a crisis, so it’s important to set aside money for an emergency. This would be in case you get into an accident or another emergency occurs. 

Begin with a $1,000 emergency fund minimum. Utilize your budget from step 1 to begin saving for this emergency fund each month. Whether that’s $10 or 10% of your budget, begin saving. If you were to save your $300 each month, your emergency fund would be ready in a little over three month’s time!

7. Pay down debt

Begin paying down debt that isn’t a house (i.e. cars, credit cards, student loans, etc.). Strategically pay down by balance using the debt snowball method, or by paying down debt with the highest interest first. The idea here is to begin managing and eliminating debt from your life. Find a way to succeed and free yourself from the bondage of debt. Small success will breed larger successes over time. 

8. Save 3-6 months living expenses

Next, begin saving up 3-6 months worth of living expenses. This would be in case you lose your job, or a financial crisis occurs. This is only a range to get you started, and you may feel more comfortable having an entire year of savings tucked away instead. Be as conservative as you want, but begin saving against uncertainty. Strive to ensure  that your income isn’t the only stability for your financial footing. 

9. Save for future goals

Have a finance-forward mindset. Many people plan to save or invest money after their typical monthly expenses, only to find that there’s no money left at the end of the month because it can be hard not to spend it. As a result, they continue down the slippery slope of financial doom. Debts continue to pile up. Retirement never gets saved for. And when the day of reckoning comes, they’re left with no luck, no excuses, and no money.

Think about your retirement or other investment accounts. Say you’re able to save 20% of your monthly after-tax salary each month. Saving $600 a month would be $7,200 each year. If you invested the same amount each year for 5 years, in something with a 7% estimated annual rate of return, you’d have contributed $36,100 with an additional $5,501 in interest for a total of $41,601! In 15 years, you’d have $181,314. And in 36 years, you’d have $1,073,768!

Every step you take on your climb to financial independence is significant. Continue saving every month to help you get there. 

10. Increase your income

Remember that having a low income > no income. Additionally, remember that your income isn’t static. Money is infinite, and so is your earning potential. Work hard and you may have the ability to ask for a raise at your current job, or be qualified for a better, higher-paying job. Educate yourself by gaining skills the world needs, or consider starting a side hustle. Walk your neighborhood dogs, create something and sell it online, or find a way to monetize a passion or hobby of yours!

Invest in yourself and your improvement, and you’ll see dividends for years to come. 

Climb on, FinBase.


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John is a personal finance writer, editor, and a fellow FinBase climber. Tech worker by day, design owl by night, he is the co-founder and creator behind The Financial Basecamp.
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