All About Budgets | Debt

How To Create A Budget When You’re Broke

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She’s Broke And Not Sure How To Create A Budget

It’s not unusual for me to read comments about not being able to budget because someone is broke.

When I read this I feel that the premise of what a budget stands for is not being understood properly.

You see, a budget is not meant to get you out of the debt you put yourself into.

A budget is there to guide you so you make the right decisions to help yourself get back on track and pay off debt.

Often a negative mindset towards budgeting is what holds people back but once they see the results they are amazed.

Years ago I helped Jen and Ken with their monthly budget which allowed them to understand their financial mistakes.

Whether you have low-income or no savings in the bank a budget is right for you.

The only way up is by putting your numbers to the test and push yourself to the limits.

Either you want it, or you don’t.

Let’s have a look at Monica’s story.

I Need To Budget But I’m Broke

Dear Mr.CBB,

One of the most important tasks I wanted to complete in 2020 was to create a budget.

I’ve never tracked my finances before which is why I have debt that I’m struggling to pay back.

I know that once I finally create a budget that works for me or find one that does things will look up.

Feeling lost in a world of numbers is something that I’m used to and I don’t know where else to turn.

On a monthly basis, I net approximately $2300 which is one of the reasons I’m broke most of the time.

In my bank account, I don’t have any savings apart from what I don’t spend or try not to spend.

I’ve been living on my own since I was 24 and I’m not 28 years old and want nothing more to feel free from money stress.

I know I’m young however if I don’t get my money problems under control now I’m afraid I’ll be stuck the rest of my life.

Growing up in a household where my parents both have good jobs meant money wasn’t discussed, just spent.

I didn’t know the value of money until I moved out on my own and it scares me because I’m not my parents.

The only debt I have is my car debt which is $325 a month for the next 2 years and then it’s paid off.

I also have a MasterCard credit card that has a current balance of $1565.33 at the time of writing you this email.

Each month I pay the minimum amount on my credit card although some months I add more.

My monthly rent is $750 plus utilities which amount to around $2o0 which includes my basic cell phone.

On your advice, I made sure to get tenant’s insurance last year which costs me $19.45 a month.

There is no life insurance or any type of retirement savings plans that I pay into yet but would like to.

At this time I  don’t have a grocery budget since I only buy food with any money I have left to spend.

During the week I try to eat a balanced diet but I don’t overindulge as I can’t afford to do so.

Some months are better than others depending on whether I have extra cash or not.

Parking and laundry facilities at my building costs around $70 a month both of which are necessary for me.

I never did go to University or College so I don’t have any student debt to worry about (just in case you were wondering).

My biggest problem when it comes to money is not knowing how much I can spend.

I understand a budget will help me to solve this problem but I feel overwhelmed with the process.

Right now, I’m broke and would like to find ways to save money while paying off my debt.

Once my debt is gone I plan on saving as much as I can for my future and potentially a downpayment for a house.

You’re probably wondering where all of my money goes well, to my monthly bills for starters and eating on the run.

I have a bad problem with eating on the go and shopping when I’m bored or want to get out of the house.

With COVID-19 I’ve found myself doing online shopping far more than I’ve ever done. 

This is probably why I feel so overwhelmed at the moment because I know I need to stop.

The only way I feel that I can do that is by challenging myself with a budget.

How do you even budget when you’re broke?

Sorry if this is too long but I thought since you always help others that you might help me.

You can email me if you need any other information.


Monica L.

Southwestern, Ontario

Budgeting IS For Every Budget Even If You’re Broke

Hi Monica,

Thanks for sending me your email and I’d be glad to run through the process of a basic budget with you.

In fact, if you want to create a budget even if you’re broke it’s no different than anyone else’s budget.

For the purpose of you not ever using a budget before I chose the Canadian Budget Binder Basic Budget.

You can find a version of this on my Free Budget Binder Printables page.

I hope you do read this as I tried to email you back however it may have gone to your junk mail.

The reason for my email was to ask you for more numbers that I could plug into the budget for you.

Since I did not get those numbers you can do them on your own.

Creating A Budget When You’re Broke

Basic Budgeting
How To Budget When You’re Broke Infographic

Goals Are Important If You Want Something To Work Towards

Just because you have little to money does not mean you can’t budget.

I’ve heard it time and time again that it’s impossible to budget when there’s no income.

If you have zero income you have a bigger problem than trying to create a budget.

When you do have any source of income coming in you can budget net income in vs expenses going out.

Using a basic budget is all that you need to track and master your monthly budget.

Before you begin any type of budget it’s important to set goals.

Some of you may think this task is for the fluffy fairies of budgeting but it does add value

When you take the time to ask yourself what you want from a budget and set goals you’re likely to challenge them.

For example, if I said to you that I’d give you $1000 if you budgeted with me for one year you’d probably do it.

However, if I said that I’d give you a certificate for budgeting with me for one year you probably wouldn’t.

A piece of paper will never beat out cold hard cash although for hard-core budget fans it may be all they need.

For those of you who need the extra push and challenge like I do setting goals is imperative.

I often set short-term budget goals such as;

  1. If we reach a certain savings goal this month we will treat ourselves to a dinner out.
  2. When our savings account reaches x amount of dollars we will take a mini-trip or buy something we want instead of just need.

These types of goals motivate us and it’s something I often share with my readers.

Collecting Your Bills

Being unorganized is a key attribute of many people who are in debt and don’t know where their money is going.

It’s often easier to throw bills in a pile never to be seen again on the kitchen table or in a box hidden in the bedroom.

I’ll admit that before I started budgeting I was horrible like this but I made sure my bills were paid on time each month.

These days all of our receipts and bills go into our budget binder so we know where our money is going or will be going.

This is a great time to clean out the drawers, toss away old bills, and start fresh with current documents.

If most of your bills are paid automatically or arrive electronically start a folder in your email for each bill.

The idea is that you put each email from the company you owe money to into the folder once the bill is paid.

Tracking your bill payments is another great task to do just for that added protection of knowing.

One of our faults was not having enough money in our chequing account when money was automatically being debited.

Track, monitor and make sure money is always ready for those bills to be paid especially when automated.

Tracking Your Expenses

One thing I want to mention when you begin using a budget and you’re broke don’t focus on savings so much.

The idea is to crush your debt first and then save as much money as you can.

However, an emergency savings fund is something you don’t want to pass by even when you’re broke.

This is where tracking your expenses becomes critical to the success of your budget.

Tracking your expenses for a month or even two should be sufficient enough for you to see where your money is going.

Before you even begin with a budget, start by finding out where the money is going.

The overall picture will allow you to create budget categories that fit your needs and distribute money to each.

For example: Tracking the grocery expenses you’ve found out that you spend $300 a month on food at the grocery store.

If that number is too high for your budget because you need more money to pay your fixed bills ie: rent, utilities then lower the budget expenses.

Now you know that you can spend $200 a month safely on groceries as your other bills are taken care of.

However, if you want to crush your debt faster and you feel you can lower your variable expenses, go for it.

Take the money that you would have spent in one budget category and apply it to your debt principle.

This is how we were able to pay our mortgage off so quickly along with a yearly lump sum payment.

The idea is to save as much as you can where you do have control and allocate the funds to another area of your budget.

Simple enough but even if you can’t as long as you are budgeting that’s what matters.

In time you will definitely see the benefits of your hard work, just don’t expect it right away.

Improving Your Budget

low-income budget

For Monica, I used my unreleased Basic Budget (there is an older version here) and plugged in the data I was given.

Although her net income is $2300 a month and using the figures I was given there’s $935.55 left to spend.

I’m not sure where all of that money is going but I can assume a few things.

  1. Debt Repayment
  2. Gas for her car
  3. Insurance for her car
  4. Eating Out
  5. Shopping
  6. Health and Beauty
  7. Telecommunications

Given that she has such a small credit card debt I’d first work on getting rid of that 100%.

Moving forward with your budget you should only use the credit card if you plan to pay it off in full.

Since you don’t have an emergency savings fund if an emergency comes up and you must use your card then so be it.

Once you plug in the rest of your figures see what you have left and areas you can improve on.

Any money that you have leftover put towards building at least 3-6 months of emergency savings and killing debt.

Your car payment is only for another 2 years however keep in mind the state your vehicle is in.

  • Will you need a new car in two years?
  • How will you start saving for a new car?
  • Will you take out another loan for a car when needed?
  • How will you fund any repairs? (emergency savings, projected expenses)

Retirement Savings

Once your credit card debt is paid and you’re saving for emergencies consider talking to a financial advisor.

He/she can help you make the right decisions based on your budget and any extra cash flow you have for retirement savings.

Your current notice of assessment for 2019 will tell you how much room you have for your registered retirement savings.

You can also call the Canada Revenu Agency or log in to your My Account.

Tax-Free Savings Account

If you haven’t invested in a Tax-Free Savings Account you will have the maximum allowable contribution room.

Your TFSA contribution room information can be found by using one of the following services:

Life Insurance

You’ll also want to consider term life insurance and critical life insurance if you don’t already have that.

There are lots of factors to consider with finances and many people miss all the simple stuff and pay the price in the end.

Ask yourself lots of questions about your budget and find the answers if you don’t have them.

Don’t be afraid to make phone calls and talk to your banker as they most likely will advise you.

Ideas To Decrease Expenses And Increase Income

  • No-Spend Challenge where you don’t spend anything for a month apart from monthly bills.
  • Eat-In Often, Meal plan and stop buying food on the go which adds up quickly.
  • Avoid Online Shopping if you struggle with not being able to say no.  Just don’t do it.
  • Sell anything you no longer need so you can bring in some extra cash.
  • Find a part-time job again to add extra money to your cash flow to help pay the debt off faster.
  • Eliminate any unnecessary expenses (ex: television, cell phone, home phone, internet)
  • Call your credit card company and try to negotiate your interest rate

At the end of the day Monica, the most important thing you can do is to stay positive.

I know budgeting can be tough when you first begin but it will get easier as you go along.

Plan for those unexpected expenses that pop up throughout the year by budgeting projected expenses into your budget.

It’s a simple process where yous save a certain amount each month so you have the money when the bill comes due.

A negative mindset only allows people to stay where they are financially and not move forward.

Don’t let this be you.

If you read this and have any other questions please message me.

Discussion: What other tips would you give to Monica to help her to create a budget?

Leave your comments below.


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