Budgeting. Most of us try to avoid it because we know that we suck at it. So we put it off and are completely okay with living paycheck to paycheck.
As long as you have enough money in the bank to pay bills, who needs a budget anyway, right? Wrong.
A budget isn’t meant to boss you around and tell you what you can and cannot do with YOUR money. It’s meant for you to BOSS your money around.
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Because if you’re always wondering where your money went instead of knowing where it’s going, that’s a very stressful position to be in. But I’ll spare you the lecture and the reasons why you need a budget.
If you’re here and reading this now it’s because you are already aware of this — and that’s a good first step towards a healthier financial future!
Budgeting when you live paycheck to paycheck
There was a time I avoided making a budget too. Because most of the budgeting advice out there wasn’t applicable to my family. Being a stay at home mom means we live on ONE income, not two. Plus, my husband’s income is very unpredictable.
There are pay periods when he doesn’t work 80 hours exactly and then there are pay periods when he works 20 hours of overtime. So his paychecks are NEVER the same amount, which is why I was terrible at budgeting, and making a traditional budget once a month didn’t work for us.
Everything changed once I started budgeting by paycheck instead.
Because making a fresh budget every two weeks (when he got paid) became SO MUCH easier for me to actually stay on top of our finances and stick to our budget!
So budgeting by paycheck is the ONLY way I feel in control of our money. If it works for me, it can work for your family too! Below I show you the steps to creating a fail-proof budget every time you get paid.
Grab a pen, some paper, and let’s get to work!
Step 1: Brain dump all of your bills.
Set a timer for 5 minutes and write down all of the bills you have to pay each month. Don’t worry about their due dates. Just use this time to get these bills out of your head and onto paper.
To help you with this, I have included the most common monthly expense categories below:
- Utilities (electric, heat, water, sewer)
- Loans (auto, student, credit cards)
- Cell phones
- Insurance (auto, health, life, homeowners, etc.)
- Memberships and association fees (HOA, clubs, etc)
- Subscriptions (Netflix, music, etc.)
Refer to this list of budget categories to make sure you aren’t forgetting anything.
Step 2: Determine how much you earn each paycheck.
If you have irregular income, you’ll want to refer back to your last 4 to 6 paychecks to determine your average minimum pay.
For us, that number is $1500. So I will use this number as the foundation for our budget because I know that he is likely to not earn less than this amount on each paycheck. And I can tell you that he almost ALWAYS will earn more than this, but I’ll show you how I handle that later.
Once you have determined your minimum earnings amount, you need to write this number down and give it an expected pay-by date. A lot of people get paid on the 1st and 15th of the month, but if you’re paid bi-weekly, this won’t be the case. But even if you get paid a little before or after the 1st and 15th, you can still use it as a guide for your budget.
If you’re paid weekly, take your average minimum pay for week 1 & 2 and combine them as ONE paycheck to get your “bi-weekly” number. Do the same for week 3 & 4. Trust me, it will be easier when it’s time to pay your bills when you budget this way.
Step 3: Assign each bill to each paycheck.
Take a look at all the bills you wrote down in step one. Now it is time to include their due dates. You can write it right next to each bill.
Once you have all of this information, it is time to divide and conquer! You’re going to assign each bill to a paycheck.
For instance, if your rent/mortgage is due on the 1st, then you’ll want to assign this bill to your First Paycheck. Because if you assign it to your Second Paycheck (which will be paid to you in the middle of the month) that will make your rent/mortgage two weeks late — not good.
Continue until all of your bills have been assigned, but making sure that you can pay them on time.
If you’re paid weekly, you can wait for your second paycheck (the following week) to arrive so that you can combine your earnings and pay your bills.
It’s going to take a lot more discipline, I know because this is exactly what I had to do for some years when my husband was paid weekly, but doing this worked out well for us.
Step 4: Add in necessities.
Now that we got the major bills out the way, it’s important to not forget about the necessities you need for daily living. Things like fuel for your commute, groceries, and household items (toilet paper, toothpaste, etc.).
You will need to include these items in your budget as well. But how do you decide how much money to spend on these things?
That’s a good question. A good place to start is by taking a look at your online bank account to review the last 30 days and see how much you’re already spending in the areas. If you want to cut costs, then you can set a strict amount to stick to for each paycheck (but I wouldn’t recommend shaving off more than 20% in the beginning).
For instance, our grocery budget for a family of 6 (two adults and four small kids) is $400 a month. But prior to that, we were spending $600/month. Meal planning helped us shave off an extra $200 alone!
Now I budget to spend $200 each paycheck for groceries. So all I have to do is make sure I keep our grocery bill under $100 a week and I know I’m right on budget!
For fuel, we do not let our gas tank go below half. That way, I know exactly how much to budget to fill up each week (about $30 — we have a minivan) and we pay cash for it.
Budgeting for household necessities is a bit more tricky because it can change from month to month. I buy things like toilet paper and trash bags in bulk because it will last us 3 to 4 months before I have to stock up again. Most other items like shampoo, toothpaste, feminine products, etc. I budget to spend $25 a month, and the same goes for diapers.
So figure out how much money your family spends on these things and decide how much money you’ll need to budget to cover these costs with each paycheck. Then, you can add these necessities to your budget as a line item (i.e. Groceries $200, Household $25, Fuel $60).
Step 5: Add in savings funds.
This is the point where most of us completely throw our budget out the window. Because once your bills and necessities are paid for, you simply don’t know what to do with the extra money you have — so you blow it.
We were blowing our “extra” money on fast food and impulsive shopping trips. The worst part is we didn’t even have a savings, so when our car unexpectedly needed a new battery, we had to put it on a credit card.
Instead of blowing the extra money you have in your budget, you can create funds so you don’t go over budget. You can create funds in your budget for nearly EVERYTHING including:
- Kids clothes
- Emergency savings
- Medical bills
- Dining out
- Car repairs & maintenance
- Fun money (date nights, entertainment, etc!)
We started off only putting $5 extra towards each fund, then slowly increased it over time. I found this to be the EASIEST and most painless way to get into the habit of saving if you’re new to this.
But the trick to making this work is to open as many savings accounts as necessary. You’ll be more organized and less likely to spend money you’re not supposed to.
Step 6: Subtract your expenses from your income.
You’re doing great so far! You did the hard work upfront, now it’s time to see where you stand with your money.
First, you’ll need to subtract all of your expenses (including necessities and funds) from your First Paycheck. If you have any money left over, add it towards your funds or debt repayment.
Repeat the same thing with your Second Paycheck. If you have any money left over, add it towards your funds or debt repayment.
If you don’t have any money left over you will need to cut costs or find ways to make more money. First, let’s look at some practical ways you can cut costs to save money (without sacrificing):
- You can cut your cable and use Sling TV instead — it’s only $25/month for 50 top channels and you can try it out for 7 days free here.
- You can switch to a low-cost cell phone carrier — we switched from Sprint to Metro by TMobile (formally MetroPCS) and saved almost $500/year for the same service! Now we only pay $90/month for two unlimited phone lines which also includes an Amazon Prime Membership for free! (YAY!)
- You can bring your lunch to work instead of buying it every day.
- If you don’t have time for clipping coupons, you can get free refunds on your groceries with the Ibotta App.
If cutting costs still isn’t enough to make room in your budget, then you’ll need to consider ways to make more money. You could try asking for a raise, getting a higher paying job, or working from home on the side.
Woohoo! You’ve just created a budget that gives you the foundation and flexibility you need to get your money under control even if you’re living paycheck to paycheck.
As long as you’re monitoring and adjusting your numbers accordingly, I am confident that you will be able to finally stick to your budget every month! You’ll also want to download our free Paycheck Budgeting Worksheets here so you can easily organize your income and expenses every time you get paid.