How to Budget on a Low Income in 2023

Learn how unpaid family caregivers can budget their money with a low income in this article.
Published on
February 13, 2023
Presented by Givers
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Being an unpaid family caregiver can be expensive and overwhelming on a low income. But with the right strategies, budgeting for caregiving in 2023 doesn't have to be complicated. Learn how to craft an effective budget that works for you. Learning how to prioritize your spending and maximize your income can help you balance work, life, and necessities when economies are in a recession.

Basics of budgeting on a low income

Managing expenses can become a daunting and terrifying task when you live on a low income. How can you make the dollar truly stretch? You need to have enough for housing, groceries, and medical expenses. But what about back-to-school shopping, childcare, or Christmas? Additionally, our economy depends on extreme consumerism. What does that mean? We expect to have the latest car, the newest clothes, see the latest movie or attend the most expensive college to succeed.

The reality? Worldwide our economies are in a recession. More than half of American families struggle to meet basic needs. And most families cannot even absorb a $400 emergency like a car repair or medical problem. While there is little you can do regarding the economy and inflation, you can reign in expenses with solid budgeting skills. 

Prioritize expenses

The key to good budgeting? Prioritize. What should always come first, no matter what? 

  • Housing - Always prioritize rent or a mortgage over other expenses to avoid eviction and homelessness. 
  • Groceries and food - While you don't need to buy expensive organic foods, finding a way to eat the healthiest you can on a small budget will help you feel better and not get sick. Plus, you need food to survive.
  • Medical treatment and medicine - If you have a severe medical condition or mental health issue, prioritize medical appointments, medication, and treatment. You cannot take care of your family if you are sick. Prioritize medicine. 

Other expenses like car payments, entertainment, Christmas gifts, and even credit card debt do not matter if you don't have a home, can't eat, or end up in the hospital because of illness. Prioritize what you need to survive first. And realize that others may not be making the same decisions as you. And that's okay. You need to prioritize your health, housing, and family over expectations made in a challenging economy like this one. 

Budgeting caregiving expenses

Before you begin budgeting, take a moment to review your current caregiving expenses. Make sure you understand how much you've been spending and what types of services have been the most costly. You can use a budget app to help you with calculations.

Account for those costs when creating your new budget. Consider all caregiving expenses—such as transportation, coordination, and management of services, supplies and equipment, respite care, and more—to get a clear picture of your total expense burden.

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How to create a budget for a low income

Here are the three steps you need to follow to budget on a low income: 

  1. Calculate your income
  2. Calculate outgoing expenses
  3. Subtract expenses from your income

Budgeting might seem simplistic, but let's break it down further. Don't be surprised that the numbers don't add up the first few times you calculate your budget. That's okay. That is what this budgeting process is for - to help you find where you can balance your income and expenses, find what you need to cut, and how to better your financial situation. Creating a balanced budget may take months or even years, and the key is to start. We will begin with creating a yearly budget.

You can use a budget app to help you calculate expenses. Some popular budget apps include: 

  • Goodbudget
  • EveryDollar
  • Honeydue
  • Mint
  • Pocketguard

Step 1: Calculate your income

Your income as a family caregiver includes wages, tips, dividends, and any other income you may earn. For example, you could make an extra $150 a month as a Doordash driver or an additional $1000 as a pet sitter. Or you can count on your aunt giving you an extra $100 on your birthday each year. Calculate every bit of income you earn. 

When you struggle to make ends meet, you will be surprised how much extra income can help. You may also want to count your tax refund if you know it is a set amount each year. 

Step 2: Calculate outgoing expenses

What are your expenses? You need to count everything from housing to car payments, childcare, to medical costs. Here's a short list of what you need to include:

  • Mortgage or Rent
  • Utilities
  • Food and Groceries
  • Debts and Loans
  • Childcare
  • Caregiving Expenses
  • Transportation
  • Insurance
  • Clothing
  • Entertainment
  • Other (ex., Vacation, pets, etc.)

Step 3: Subtract total expenses from total income 

After you have calculated all your income and expenses, subtract your total expenses from your total income. The formula should be: 

TOTAL YEARLY INCOME - TOTAL YEARLY EXPENSES = X

Is your budget balanced?

Suppose X is a positive number; congratulations! You have balanced your budget! Your next step should be applying the surplus to either pay down debt, save an emergency fund (typically $500-$1000), or cover some necessities you need. For example, you might need to fix your car, buy additional supplements for your illness, or your care recipient might need a new cane. Save at least $500 for emergencies, even if it takes a year to earn that amount. 

If you have a balanced yearly budget, then prepare a monthly budget. If you have a steady income, you can calculate a rough monthly income using the same process you have done for a yearly budget. If you have a fluctuating budget, figure out your annual income by dividing the Total income by 12. That will give you a general monthly income to use as a base pay for your budget. 

Example: $36,000 per year / 12 = $3,000 monthly income

But what if you ended up in a deficit? Your year-end number is in the negative, maybe even by thousands of dollars. That's when it's time to crunch the budget and find outside services to help. 

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How do you survive on a low budget?

Many financial experts recommend the 50-20-30 rule for low-income families. Spend 50% of your income on food, medical, and housing needs. Use 20% on saving an emergency fund and paying down outstanding debt. Then use 30% for all other expenses. While that seems simple, the reality is that many families are underwater in their budgeting. Here are some ways to cut spending and increase income. 

Apply for government programs

The first step to increasing your overall income is researching what programs to which you can apply. Medicare, Medicaid, WIC, and VA programs help low-income families with everything from groceries to medical expenses to housing. Unfortunately, the process is unnecessarily tedious, but applying for these programs can provide significant relief. Benefits change state by state, with some offering substantially more benefits for residents. 

Research non-profit programs, food banks, church programs, and mutual aid programs. Mutual aid provides individuals with specific needs like food, help with rent, or even help with pet needs. Due to the challenging economy, there are hundreds of places with resources but lots of families in need. Some places may have a waiting list but can still offer temporary assistance. 

Cut costs

After setting your financial goals, you can review your entire budget and find ways to cut repeat expenses and significant budget expenses. While some financial advisors will focus on small items like a Netflix subscription or earning more money through selling extra furniture, the reality is that those are one-time stop-gap expenses that will only chip away at large deficits. 

If you increase your monthly income, you can alleviate the financial pressure. Some families earn additional money through Instacart, Doordash, or even donating plasma weekly. You can add extra shifts or work a small gig on the side. In this hot job market, research better-paying jobs in your field. On average, an employee today who changes jobs typically earns an additional 20% and may even have added benefits like health insurance or remote work options. Find ways to increase your overall income. 

Cutting out the avocado toast or occasional Friday night pizza matters less than making major cost-cutting decisions. Focus on big-ticket items and significant expenses that you can reduce or eliminate. For example, childcare remains one of the most significant expenses for American families, with the average family spending up to $2,000 per month on childcare!

Monitor your credit score

Monitoring your credit score helps to make the most of your money. A higher credit score means you are eligible for a better interest rate, which creates more savings for you, including what you spend on debts like a mortgage or personal loan. A good credit score can also help you get better terms on loan products like credit cards, insurance discounts, and housing options.

You can work to improve your credit score even if it is less than ideal right now. Here are some steps you can take to improve your credit score:

  1. Pay your bills on time: Late payments can significantly impact your credit score, so make sure to pay all your bills on time.
  2. Keep balances low on credit cards: Your credit utilization ratio, or the amount of credit you use compared to your credit limit, can significantly impact your credit score. Keeping your balances low can help improve your score.
  3. Pay off debt: Paying off debt is another way to improve your credit utilization ratio and, ultimately, your credit score.
  4. Keep old credit card accounts: The length of your credit history is essential to your credit score.
  5. Dispute errors on your credit report: If you find them, you can dispute them with the credit bureau and have them corrected.
  6. Limit new credit applications: Every time you apply for new credit, it can result in a hard inquiry on your credit report, negatively affecting your score. Limit the number of new credit applications you make.

Childcare costs

What can be a solution to the childcare debacle? Universal childcare, headstart programs, and creating co-ops where parents can help watch children with other families are some solutions. Family members can help with childcare, or looking at different hours to reduce childcare expenses may help. 

Some family members work remotely from home until their children reach school age. If childcare costs are breaking the bank, re-evaluate how you can take advantage of free local childcare programs, head start, universal preschool, or other options to reduce this massive cost. 

Transportation and housing

Another significant expense for unpaid family caregivers is transportation. Some families have two vehicles but can survive with one, and Uber and disability transportation may fill in for some needs. Public transportation is popular in the cities but is not an option in smaller suburbs or rural areas. Some transportation options:

  • Carpooling
  • Buses
  • Selling extra vehicles (ex., Second car)
  • Walking or biking
  • Remote working
  • Getting a job closer to home
  • Energy-efficient vehicles

Reduce housing costs by downsizing, renting a room, moving in with family, or adding a roommate. Many other cultures have multigenerational housing, and in the United States, it is typical for a single house to host more than one family. You can pool resources with family members or friends to invest in a housing co-op or share a rental to save.

Suppose you need assistance while caregiving—financial, emotional, or otherwise—don't hesitate to ask for help. Hundreds of local, state, and national organizations offer assistance to family caregivers, including Medicaid waiver programs and respite care services. In most cases, these services are free or provided at a reduced cost. Speak with your health provider about the types of assistance available for you.

Related: How Caregivers Can Meal Plan & Eat Healthy On a Budget >>

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