Fixed incomes are pretty common. Whether it’s from pension, Social Security, or some other regular, set income, a fixed income creates the need for a fixed budget. When you have a certain amount of money coming in, it’s smart to make a plan for how to spend it.
Making a budget on a fixed income, like any other money habit, takes practice. Once you get the hang of it, though, a budget on a fixed income can give you more control of your finances, and free you up to make better, smarter purchases.
How much money is coming in?
The first step to setting a budget on a fixed income is to determine what your income is. Whether it’s earnings from a job, a government benefit, or a pension, income helps you fund your everyday life.
Take some time to list out your income sources and find out what they amount to after taxes. That total amount of money coming in each month will help you determine your budget.
What are your monthly expenses?
The things you absolutely have to spend money on each month are your monthly expenses. When we talk about the monthly expenses, we’re usually talking about bills with fixed, inflexible payments. Some common fixed expenses are:
- Rent or mortgage
- Utilities (like gas or electrical bills)
- Phone bill
- Installment loan payment
- Credit card payments
List out and total up your own monthly expenses. This will show you how much money you have to be flexible with for other must-haves and wants.
What are your must-haves?
Must-haves are things like gas, groceries, and clothes. You might think these items should fall under the monthly expenses category, but there’s a main difference here: the cost of must-haves is flexible while monthly expenses are not. With some shopping around, you can find deals on groceries, gas, clothes, and other must-have items on your budget.
List out your own must-have budget items and set a realistic goal for what you’d like to spend on them. You can do this by looking at your past spending habits – do you like the amount of money you see going into food? Could you stand to spend less by making a few adjustments? Be honest with yourself about your spending habits, and decide on a comfortable amount to spend on monthly must-haves.
Making a budget work.
It’s one thing to know your income and your monthly budget. It’s a whole thing entirely to know how to actually stick to it. For this, we have a few tips:
- Write down every dollar you spend – this will help you track where your money is going.
- If you have multiple credit card or loan payments, consider a debt consolidation loan with World Finance. Consolidating your debt will help you manage monthly payments and pay down debt faster.
- Don’t forget annual expenses, like car or property taxes. Being prepared will help you avoid a surprise budget crunch.
- Save money when you can. Building a savings account will help you in the long run – whether it’s for a rainy-day expense or to build credit with advance payments on a loan, having money in a savings account will enable you to lower financial stress.
- Keep going! If you overspend or miss a payment one month, don’t let it get you down. The best thing you can do is communicate with your lenders, adjust your spending, and get back on track.
With a little bit of attention and practice, you can make a budget on a fixed income work for you. Interested in other budgeting resources? Read more about Better Budgeting with the 50/30/20 rule and Your Emergency Fund: How Much is Enough?