Although the US economy is showing signs of recovery, more families are struggling to make ends meet. Squeezed by rising living costs and meager earnings, the number of American families trapped in financial struggles is growing fast according to a report carried out by medium
The situation today may be better than it was in 2011 when the national census bureau reported that nearly half of all American families (47.5 million people) were under the low-income category.
However, income struggles still persist. A fact sheet published by the kairoscenter.org, in 2017 indicated 45.7 million Americans were living in poverty.
Moreover, nearly half of the entire adult population (48%) could not handle a $ 400 emergency expense without borrowing or selling something they owned.
Given such figures, it was rather ironic to come across a commenter on Reddit who observed that there was very little help online for low-income families.
The commenter further noted that â€śMost personal finance information available online was directed towards middle-income and wealthy families,â€ť and candidly asked, â€śIs there anything out there that is geared toward actually helping someone who is poor and in a broken home?â€ť
Fortunately for the commenter, and the 45.7million Americans trapped in poverty, budgeting is a tested personal finance management principle that applies notwithstanding the income level.
Budgeting for low-income families is not an option; it is imperative if such a family hopes to transcend the low-income threshold.
However, budgeting on a low income may seem like a difficult endeavor. Nevertheless, you can make a practical budget and master the art of budgeting and executing it using the following tips.
Workable budgets are seldom made from estimates of â€śhow much I will spend this week.â€ť They are developed from actual data which gives accurate predictions of how much you will spend or a very close estimate.
To come up with such an accurate plan, personal finance experts recommend a period of four to six weeks of doing nothing else but recording all your expenditures.
Capture all the details, from the large â€“ planned â€“expenses, to the least â€“unplanned â€“ expenses and everything-in-between.
It may sound inconveniencing or overwhelming, but it is necessary.
Once you have tracked your expenditures, the app can help you identify some obvious expenses you can cut-down right away.
For instance, it is estimated that the average monthly grocery spending for a family of four in the U.S. is $ 1,000. Youâ€™ll never know whether you are within this average unless you start tracking your expenses.
But, before you pat yourself on the back for being within the â€śnational average,â€ť we think a $250 bill for each family member on groceries is still too high.
You can use your expense tracker to identify frivolous expenditures, such as junk food, and you can cut it down to less than half.
Now that youâ€™ve tracked your expenses and have an accurate picture of how much you regularly spend on each item, you can proceed to create a budget.
A budget is a plan on how you will spend available income over a course of time.
Making the plan and sticking to it is the single most important thing anyone can do about their finances.
Hereâ€™s a timeless budgeting tip for low-income families. Get everyone involved!
As long as family members are of age and can make a decision, you should involve each person in the decision-making process. Involving each family member makes the budget a team effort and transfers the responsibility to the team.
Also, by involving everyone in the family, you are less likely to leave someone out and members can contribute to the budget positively. Plus it keeps you accountable.
Plan for every dollar before it hits your account. By the time your paycheck comes through, youâ€™ll have made arrangements to take care of each item, and if thereâ€™s any â€śleftover cash,â€ť you can use it to create an emergency fund.
Alternatively, you can take a tip from Warren Buffet and save first before you spend any of your income
Whatever approach you take, just stick to the budget.
The envelope method is an excellent way to get you started on sticking to a budget. In this method, you get several envelopes (according to your expense categories) and slot in cash for each expense item.
Each time you need to spend, â€śdraw cashâ€ť from the particular envelope. When the funds are exhausted in the envelope, youâ€™ll know that you cannot spend any more on the particular category.
Your budget will work only if you allocate sufficient funds for each expense. For instance, if your tracker shows that you spend an average of $700 on groceries each month, but you allocate $300, youâ€™ll experience a shortfall.
This shortfall can only be fixed by taking money away from another category. Often, people eat into their savings or take out money from their long-term needs â€“such as retirement savings â€“ to meet the current, pressing need.
Other homes choose to borrow, either short-term loans or through the credit card. Many low-income homes in America face this predicament and often end up in vicious debt cycles. But you can avoid debt cycles or get out of one if you are already in it.
If your income cannot sustain your lifestyle, thereâ€™re only two things you can do about it. Either make more money or cut down on your expenses.
Fortunately, today there are tons of ways which you can make money without having to take an extra job. In fact, you can make money by giving your opinion on websites such as Ipsos, or Harris Poll US.
Itâ€™s also easier to make money from your hobby today than it was a couple of years ago. If you love photography, shutterstockÂ is an excellent place to sell your photos.
If you love writing, you can meet people whoâ€™ll pay you to write for them on iwriter. Whatever service you offer online, platforms such as FiverrÂ can help you make a ton of cash without having to quit your 9 to 5.
Are your expenses reflective of your income level? Your expenses make up the other side of the balance. They have to be reflective of your income, not other peopleâ€™s expectations or â€śyour perceived lifestyle.â€ť
Low-income families in America are often muddled in financial woes because they live beyond their means. Budgets are often hard hit by unnecessary expenditures that cannot be justified and opportunities to boost savings or clear debts are often wiped out by the urge to â€śreward yourselfâ€ť with something shiny or expensive night outs.
For heavensâ€™ sake, donâ€™t try to keep up with the Kardashians!
Instead, make a commitment to spend only on what is necessary. Do not to splash hard earned cash on frivolous expenses.
Taking control of your finances means that occasionally youâ€™ll have to make an uncomfortable turn. If your expenses exceed your income, youâ€™ll need to adjust your lifestyle.
If you arenâ€™t making enough to sustain your rent payments, consider moving to a lower cost neighborhood. A look into My Affordable Housing GuideÂ will help you achieve this.
If your income cannot sustain your gas-guzzler, or the car insurance payments are too high, trade the guzzler for a more fuel-efficient car and log into The ZebraÂ for a better car insurance deal.
Consider cutting down on your entertainment costs and grocery costs by preparing your meals at home more often. Cut down the dinner dates from every Friday night to once a month or rent a movie and watch it at home over popcorn instead of having to go out.
The bottom line is, make adjustments thatâ€™ll suit you and draw your expenditure level to within your income level.
Take advice from Warren Buffet and spend only what you have after saving. If you find yourself stretched, good! It means that youâ€™ve prioritized saving over other expenses.
But you can also increase your saving level by taking advantage of discounts and promotions.
Savings opportunities exist all the time, however, without a plan, we end up buying into marketing tricks not saving opportunities. For example, spending $50 on a shirt so that you can cash in on a $ 5 discount is not a saving opportunity!
However, there are several genuine savings opportunities that you can take advantage of. For instance, you can find amazing coupon deals at coupons.Â If you have an anniversary coming up, donâ€™t settle for the most opulent night out.
Make a budget thatâ€™ll help you reduce debt level and keep debt at bay. Thereâ€™s nothing wrong with borrowing. However, borrowing to meet our daily expenses or pay for unsustainable lifestyles, is digging our financial graves.
If you are on the low-income segment of society, make and stick to a budget thatâ€™ll help you reduce debt to the bare minimum. Along with the tips above, youâ€™ll be setting yourself up for financial independence in the New Year.