Reader Question: How Do I Budget When I’m Broke?

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You’ve made your budget. You’re excited to get on track. Everything looks great… until something happens. Your whole plan comes crumbling 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. But, if you can just make it through those first few months — if you can just play catch-up and get ahead — you can set yourself up for a lifetime of financial fitness.

So, how can you get ahead when you’re already behind? That’s exactly the question Jennifer posed to me the other day. Here’s what she asked:

At this moment, we are behind on everything… as in everything. I really think that a budget will work for us, and we will be making one. However, how do people go about catching up so that the budget can work?

For example, I’ve made a few budgets for us in the past… The budget will look pretty good, and it never fails that I will look at it and say to myself “this is so doable, but oh snap!, there’s this, this, this, and this that we HAVE to pay this week or this or that will get cut off or repoed!” So that first week of the budget just goes out the window! In other words, we are in a perpetual state of “playing catch up” or worse yet “robbing peter to pay Paul”.

How do we end the cycle of being in constant crisis mode and get to the point where we’re actually able to begin using our budget??????

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

Budgeting When You’re Behind

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:

  1. 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 can learn more about surviving an income crisis here.
  2. 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 to 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 do it?

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.

Personally, we prefer to use a zero-based budget. This type of budget gives you complete control over every penny you earn and spend. With that said, having any sort of plan is better than nothing.

Need help getting started? Learn how to create a budget here.

If you prefer spreadsheets, try our guide on how to make a budget in Excel. You can also find some free budget templates here.

Hot Budgeting Tip: If you’re struggling to budget, a great budgeting program called Tiller can really help. It’s less than $7 a month and does most of the heavy lifting for you. Connect your accounts and it automatically updates your budget daily. Take the stress out of budgeting with Tiller. Learn more here.

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 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.

For the best results, keep your emergency fund separate from your other money. Utilizing an online savings account is perfect for this. Your money is kept safely away from your other funds, but it’s still accessible when you need it.

Step 5) Stick 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.

See Also: One Simple Trick to Keep You “On Budget” All Month Long

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!

Are you behind on your budget? What have you done to try to get ahead? Let us know in the comments below!

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  1. When I was in debt well Ive lost my job, so without savings I understood the importance of budget and I followed all the 5 steps described, now I’m debt free and I’m saving for important financial goals but yes I must to admit isn’t been so easy

  2. We aren’t behind on our budget but a few weeks ago we took a big hit to our savings (or some may call it an emergency fund). We had $4200 in car repairs in one week – all 3 of our cars needed repair. I was stressed and we have money! For those who don’t – that week could have crushed their budget and the $4200 could have doubled with having to finance, etc. I think reducing debt is key and thinking about needs v. wants is too. Budget for the must haves – it’s amazing what people think are needs.

  3. These are all fabulous tips. I would also add, because this is what I had to do to create margin when I was getting my stuff together:

    Sell Everything

    I sold books, CDs, clothing, all sorts of stuff on Craigslist, eBay, yard sales, consignment shops. Not only did this declutter my environment and put money in my pocket, but it taught me important lessons, namely: that stuff doesn’t make me happy, and we take a huge depreciation when we pay retail. This had the effect of making me a more conscious consumer.

    If the budget is tight, you have to do something to create margin and eliminate the ill effects of scarcity on the brain. Making more money in a side gig is one way, selling a bunch of stuff is another. Better yet, do both. I’m also a big fan of the No Spend Month or other fiscal freeze: spending money ONLY on absolute essentials, cleaning out the freezer/pantry, etc.

  4. Great tips! It’s hard for people to get ahead when they feel like they don’t have enough money to get by and not that many expenses to cut in the first place, but these are all actionable strategies that can make a difference.

  5. Olivia Fox says:

    Our biggest hits were always unexpected medical expenses. (Two C section premies, with one needing eye surgery, then follow up, then physical therapy in grade school.) Since our income was very modest, my DH negotiated with the medical people. Some were willing to go with $10 a month interest free for as long as it took. One hospital had a fund for people in our situation, (we had been paying over a couple years, but our income dropped even lower), and they paid the balance as a gift. A couple people weren’t willing to negotiate, so we muddled along and cut our living expenses to the bone. We found it doesn’t hurt to ask, if indeed you are doing everything in your power to stay current.

    Another thing is find alternative sources for what you need. Lets say it’s clothing. Seriously evaluate your needs, compared to wants. Learn to mend, haunt the thrifts and yard sales, make friendly trades with family or friends, check out freecycle if it’s available to you. Or food. Grow a little garden, buy bulk at farmer’s markets and learn to can or freeze, forage, glean (there are networks), go to day old or salvage grocery stores, buy direct from farmers, join a coop, try ethnic cooking (much of it is meat free) . Join a barter group, look for stuff on Craigslist. Whatever is available to you. Different locations have different options. It’s amazing what you can do if you are up against it.

  6. Save every receipt to help track your spending. Often you are in a routine, daily cup of coffee, lunch out on Friday and spending money mindlessly. You have to identify these habits and clean them up. Its a great place to start.

  7. Great tips Greg. Tracking your spending is such a huge way to get a grasp of what’s going on and really slow things down so you can see what exactly you’re spending your money on each week/month. The power is in that information. I also think it’s easy for us to give into the idea that it’s impossible to change and becomes sort of a self-fulfilling prophecy – well, at least I know that’s how it was for me when I was in debt.

  8. I think it’s so important that people start with tracking expenses. Often we have NO idea how much we are spending in each category. If we pull a number out of thin air, it can explode a budget. I’ve seen people say, “I think we spend about $500 a month on groceries. Let’s try to cut that down to $450.” But in reality they have been spending $900 a month, so the little cost saving hacks they try to save $50 will still leave them $400 over budget. It can be hard to wait, but if people can track the expenses for 2 months while they start to find ways to reduce costs, they have a much better shot at creating a realistic budget.

  9. I agree that the income crisis is the toughest. Focusing on increasing income through selling things, side gigs, even a temporary part time job really bring hope to the situation. I just have to remember the newly found income is to pay down bills, not celebrate.

  10. Sahil Bhardwaj says:

    Great post, the points are really helpful to improve your budget. Thanks for sharing

  11. I think prioritizing a small way to celebrate or treat yourself is really important, too. And what I mean is following these steps but then saving say $5 to splurge once a week AFTER you’ve followed the steps. And building in non-money incentives and motivators can be huge, too!

  12. Have you ever thought of creating an app that tracks your envelopes? I don’t carry a purse a lot of the time and it would be awesome to track on my phone

  13. Love what you said– it is so easy to abandon your budget when times get tough but that is precisely the time you should cling to it! We are going through something similar right now. We are paying off nearly $600k in student loan debt (and blogging about it!). Last month was a rough month income wise and its been difficult getting everything together and making the adjustments we need to but we’ve just had to remind ourselves to stick it out! Some months just aren’t going to be perfect. 🙂

  14. It’s hard to budget when you almost have nothing to budget because of debt. Budgeting is really an important strategy to get out debt slowly. Just budget, make it personalized, and stick to it no matter what.

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