We can pitch the benefits of budgeting all day long, and you still might be thinking, “A budget—on my income? Who are you kidding?” However, following a few simple budgeting tips can be a literal life-saver that helps you maintain the spare cash to cover an emergency.
Whether money management has always been a challenge or the fallout from the coronavirus killed your budget, it's important for your financial future to start working on a family budget now (or get back into the habit), even if you’re going to be working with a particularly tight budget.
Of course, it doesn’t matter where you fall on the socioeconomic scale—any household, regardless of income, can make financial mistakes, such as spending more than they originally planned. Unfortunately, the impact of these mistakes are felt far more within a low-income household simply because there is less room for error. This is why it’s important to learn how to budget money on a low income.
While a high-income household may only have to cut back on luxury items, dining out, or other non-necessities to meet their monthly obligations if they go over budget, a low-income household risks missing their credit card, car, or even rent payments, which is much more serious.
Here, we’ll share some budget tips for low income families—such as how to be your own low income budget planner and other ways to save money on a tight budget.
What Is Considered Low Income in Canada?
So how do we determine who’s really feeling the pinch financially? Statistics Canada uses Low Income Measures (LIMs), a set of thresholds that identify which households’ incomes are below half of the median of the adjusted income distribution. This data helps researchers report the changing household dynamics of low-income families, which the government uses when considering initiatives designed to lend a hand.
On average, Statistics Canada defines low income for Canadians as $22,133 or less for a single person after tax; for a family of four, the low-income level is $44,266 or less after tax. Of course, these numbers may be higher or lower based on the city and the cost of living within it. For example, in Vancouver, Canada’s most expensive city, making below $38,500 would be considered low income.
Family Budget Tips: How to Budget and Save Money on a Low Income
Trying to find some wiggle room to accommodate all of your monthly expenses can take some creativity. However, you can rest assured because it can be done! If you're wondering how to save money or how to stop spending money, keep reading to discover our best budgeting tips for families feeling the squeeze.
Of course, when it comes to household budgeting for low-income families, or those who have an irregular income, it’s always best to keep things simple. Here are a few budget tips for low income families:
1. Put Housing First
Even on a low income budget, nothing is more important than keeping a roof over your head. So, it’s vital to start with your housing payment (and always make it on time). It's tempting to think, "My landlord won't mind if I pay later on in the month,” but this is not a good mindset.
Low income households need to take care of housing first and everything else after, because even if your landlord was forgiving of a late payment in the past, that could change in an instant.
If debts spiral out of control to the point where you can’t make your housing payments, consider reaching out to your landlord or mortgage lender and asking for assistance. This could help if you’re facing temporary hardship because of COVID or a major life event so you can get through a period where you have a tight budget that’s more restrictive than normal.
2. Set Up an Emergency Fund
Every household needs to have an emergency fund for occasional expenses such as car repairs, vet visits, back-to-school supplies, and gifts. This is especially important for lower income households because when these expenses come up, there’s a much bigger risk that other expenses will go unpaid.
A portion from every paycheque should be set aside into a separate savings account. However, finding ways to save money on a tight budget can be difficult. Even before the pandemic, the majority of Canadians were living paycheque to paycheque—which makes planning ahead and saving up difficult.
Automatic transfers are fantastic for this because you can set them and forget them. Before you know it, you’ll have a substantial nest egg. It doesn’t have to be a lot—just a few dollars each paycheque can add up before you realize it!
3. Save Loose Change
Here’s a simple budget tip: Saving your loonies and toonies and putting them into a Tax Free Savings Account (TFSA) or even a basic savings account is an easy way to start an emergency fund and improve your budgeting skills.
Additionally, some banks offer rounding services (also called “round up savings”) on their debit cards where they round each transaction up to the next dollar. The extra money is automatically put into a savings account for a rainy day. As an added bonus, this can help simplify your expense tracking in your family budget since you aren’t tracking change on every transaction!
For example, if you spend $14.75 on lunch, they’ll charge an even $15 and put 25 cents into your savings. This can be a major boon for living on a low income budget, since you don’t have to change your spending habits too much, but can still set aside money for the future.
4. Reduce Food Expenses
It’s very easy to overspend on food. Between expensive fast food, high-cost health food, and food waste from perishables going bad, a lot of money can be spent without you realizing it. When you’re trying to budget your money, food expenses can be a major surprise.
Here’s a short explanation of how to budget for food effectively:
- Look for coupons and check out flyers. While you don’t have to engage in extreme couponing, every little bit helps your family budgeting efforts.
- Shop generic versus name-brands. Most of the time, these food items are near-identical to their name-brand counterparts, but cost a good deal less so you can stretch your food budget.
- Always look for cost-friendly stores and those that price match. These stores can help you not only save money, but reduce your time spent shopping and petrol use by letting you get everything in one place.
- Track your monthly food expenses. Take a look at where you’re spending money on food and how much. This can be useful for finding opportunities to reduce your food costs.
- Stock up on non-perishable food and avoid over-buying food products with short shelf lives. While getting fresh fruits, vegetables, meat, and other basic food groups in your diet is important, buying too much perishable food at once can waste money when you have to throw it out. Consider using a weekly food planner to choose what dishes you want to prepare and use that when shopping for perishables so you don’t get too many tomatoes. Alternatively, stocking up on non-perishables like canned beans and vegetables when they’re on sale can help you save money in the long run.
Carefully budgeting your food expenses can be a great way to manage your money and save on your family’s food budget. When families are on a low-income budget, every dollar counts!
5. Shop with a Grocery List
Sticking to a grocery list will help you avoid impulse shopping and spending more than what you can afford. For example, if you are cooking food according to a food plan, stick to only the items and ingredients you need! This helps you reduce the money you spend at the grocery store and avoid wasting money on food you won’t eat before it goes bad.
Also, be sure to avoid those overpriced items in the checkout lane—that can be where stores really kill your grocery budgeting plans!
6. Do Your Meal Prep on Sundays
We often spend money on prepared food just because it’s convenient, but preparing your own meals ahead of time will help you control your wallet (and your waistband).
Sundays are a great day to do this because it’s after the weekend mayhem and your meals will be fresher for the week. Get the kids involved too so they start developing healthy habits.
To help ensure meals are stored safely, consider getting some affordable plastic containers to hold them—you don’t want your food to spoil before you eat it! Consider placing food for the last half of the week in the freezer at first, and then moving it to the refrigerator the day before you plan to eat it.
7. Review Your Cell Phone Plan and Usage
Can you make changes to your cell phone plan? Could you give up a few gigs of data each month? How many calls do you make each month, really?
The answers to these questions can be important for finding the best cell phone plan for your needs. Of course, the answers to these questions will vary depending on things like:
- How active you are on social media;
- Whether your work requires you to be “on call” or use specific mobile apps;
- If you have Wi-Fi in your home; and
- How often you’re out and about with your phone.
Be sure to compare different cellular service providers; many will price match to gain your business. You may also want to consider cancelling your landline. Your family budget will thank you for the money you save.
8. Reduce Entertainment Costs
In many household budgeting plans, one of the first things to go is the “entertainment budget.” While TV, movies, and games can be a great way to relax and relieve stress, they are often seen as unnecessary expenses. So, many tips for budgeting when money is tight recommend cutting or reducing entertainment costs.
One quick way you can improve your entertainment budgeting is to cancel your cable and sign up for a streaming service like Netflix. Look for home internet data plans that work with your income and usage to maximize your family budgeting for entertainment.
Some people may even opt to eliminate home-based internet, phone, and TV services altogether and instead use an unlimited cell phone plan and stream from their phones to their televisions. Doing your research to find the cheapest options will have a long-term payoff!
9. Visit Your Local Library
Here’s another way to improve your entertainment budgeting: Visit your local library! Most libraries let you rent DVDs and books for free. They also host free events, seminars, and story time for children. Plus, who couldn’t use a little quiet time during their hectic week!
Also, if you have old books that you aren’t reading, many libraries accept donations. This is a great way to clear out some shelf or garage space without having to rent a storage unit (or waste perfectly good books).
10. Check Out Community Activities
Most families enjoy having their children participate in extracurricular activities, but these activities can be expensive. So, how can you enjoy some outdoor time with the family on a low-income budget?
One thing you can do as a low income budget planner is avoid privately-run activities and instead look into free (or less expensive) community-based activities at your local recreation centre. Plus, many centres provide free online classes due to everyone being online now.
11. Decrease Expenses Instead of Cutting Them Out
You may be wondering how to drastically cut expenses. However, making large cuts to family budgeting plans can be extremely stressful—and the temptation to “cheat” on your budget increases when you try to quit anything cold turkey.
Instead, Look at all of your expenses to see if small decreases can be made versus eliminating one or two expenses completely. This method can be more palatable for those of us who don’t want to give up something completely. Our friendly-for-the-family budgeting calculator can help you see areas where you could cut back.
12. Budget for Current Expenses and a Portion of What You Owe
One of the secrets on how to effectively budget your money is to remember to account for both what you owe and your current bills.
For example, if you owe a three-month phone bill, budget for the current bill plus a portion of the arrears, that way you avoid falling any further behind. However, if disconnection of a utility such as heating or electricity is imminent, that will need to be addressed immediately by contacting the service provider.
13. Consider Downsizing Your Housing
Is your home bigger than what you need? It might help to find ways to downsize your square footage so you can cut down your housing budget! While shelter is the most vital need (that’s why paying your housing bills should always be a top priority), there is such a thing as having too much space.
If you live in an apartment, check with your landlord to see if you can move to a different unit or let another renter share space with you (be sure to check that the other renter is a reliable person if you decide to share space and rent costs).
Or, if you live in a house you own, consider renting a spare room out if you can. Apps like Airbnb can be helpful for this, though it’s important to be careful. There are a lot of rules you’ll have to follow if you rent out space to someone else.
14. Change to a No-Fee Bank or Credit Union
Another “how to budget” tip for when money is tight is to consider switching banks. While the process of closing accounts and moving your money to a new bank can be stressful, your budget will thank you if you can get rid of a bank that charges you monthly fees.
Most banks, both in Canada and beyond, should have a free chequing account, so there’s no reason to pay for an account when free options are available. Of course, if you know that your budget may have you overdraft from time to time, it’s important to check your bank’s overdraft fees and policies.
Also, be sure to check for any hidden fees in the bank’s agreements—a careful check of their Terms of Service document could help save you a lot of time, money, and headaches in the future!
Need Budgeting Help? Contact Credit Canada
Having a personal household budget is important for everyone, not just low-income households—but the stakes definitely get higher the tighter your budget becomes. To get started, try using our free online Budget Planner + Expense Tracker.
Looking for some free family budgeting advice but don’t know where to turn? Our certified Credit Counsellors are standing by to give you a helping hand. You can always set up a free credit counselling session with one of our experts who will review your entire budget and figure out the best way to make it work for you and your family.
Try out our Budget Calculator to see how much you can save per month!