How to Create a Budget for a Single Income

Financially managing as a single income can be both challenging and fulfilling. A smart plan should enable you to prioritize savings, debt reduction and long-term goals.

Start by noting your fixed expenses - those which remain consistent each month in terms of dollar amount - before considering variable costs like groceries, entertainment and clothing that may change with each payment period.

Identify Your Needs and Wants

One of the first steps in creating a budget is categorizing expenses into needs and wants. By understanding your expenses, it can help you plan for the future and build financial security. For an accurate view of spending habits, review three months worth of bank and credit card statements or receipts to get an accurate picture.

Consider which expenses are essential to you: housing, food, transportation, utility bills and clothes - according to Courtney Jespersen of NerdWallet this can include rent or mortgage payments, utility costs and clothing purchases. When making this determination she suggests asking yourself the following question: 'If I were to remove this expense from my budget would I still be able to live?

Once you've compiled your essential expenses, it's time to begin categorizing all other expenses so they are easier to manage with one income source.

Categorize Your Expenses

Manage expenses without the benefit of an additional income can be challenging. Start by creating a list of all of your monthly expenses and categorizing them as either fixed or variable expenses, such as rent/mortgage payments, utilities, insurance premiums and food costs - then add any recurring costs such as gym membership fees or streaming subscription fees that vary each month; don't forget donations made monthly to charities or houses of worship too!

So it is best to spend less than your income; aim to set aside at least 50% for needs and debt minimum payments, leaving 30% for wants. Tracking spending using either spreadsheet or budgeting app will provide a clearer picture of where your money is going.

Set Spending Limits

As a single individual managing money, it's vital that you understand how your spending compares with your income. Making and sticking to a budget will allow you to identify unnecessary expenditures so you can direct more towards savings and debt repayment.

Start by identifying all of your fixed costs, such as rent or mortgage payments, utilities, food expenses, transportation expenses and insurance premiums. It is also wise to include your monthly debt payments such as credit card and loan repayments.

Next, organize the expenses you still owe into needs, wants and savings. Use the 50/30/20 budgeting approach, which suggests allocating 50% of income towards essential costs; 30% towards savings/debt repayment/leisure activities such as entertainment/dining out expenses; and the final 20% toward enjoyment expenses like entertainment or dining out. Gather bank and credit card statements as a list of variable expenses.

Create an Emergency Fund

As a one-income family, having an emergency fund is absolutely essential to your survival and peace of mind. Aside from providing security against unexpected expenses or crises, an emergency fund will also give some assurance and decrease stress associated with living off just one income source.

Ideal savings should equal six months of household take-home pay. Since it may be hard to save that quickly, try setting aside a fixed amount each month and treat it like any other bill.

If you receive a substantial sum, such as from tax refund or work bonuses, try setting aside some of it into emergency savings to build your emergency fund and create the habit of saving. It will help create savings accounts while creating savings habits!

Create a Financial Map

Budgeting is essential to living within one's means and reaching financial goals, yet can be particularly daunting when living on one income. Michela suggests learning to create a money map as a visual way to organize expenses and show where your income goes (watch the video tutorial).

After creating a money map, gather monthly documents such as bank statements, credit card bills and paycheck stubs. Categorizing expenses allows you to determine if there is positive cash flow which can be used towards savings or debt repayment goals. Prioritizing debt payments ensures you're clearing away high-interest financial obligations first which could save a great deal in interest charges over time.

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