How to Budget When You’re Broke

It’s always smart to have a budget, especially when you’re tight on money. Read our guide to take your budgeting skills to the next level.

Updated: September 20, 2023

Navient may receive compensation when you click on links associated with this Navient Marketplace. Navient is not being compensated for any application, quotation, or the purchase of any financial products.

One of the best ways to take control of your finances is to make and stick to a personal budget. A budget is a monthly plan for your spending that takes into account your needs and wants. It can help you set spending limits, stay or become debt-free, and save for your future. 

Key Tips for Budgeting

Budgeting doesn’t have to be overly complicated. Here are some key budgeting tips to help you while creating and following your monthly budget: 

Understand your monthly income and spending habits

Before planning your budget, calculate your monthly income and expenses. Your monthly income is your net pay or ‘take-home pay.’ It is what you earn after your taxes are taken out. This includes earnings from your job and any other side hustles. 

To help calculate an accurate monthly income, use an income and benefits tracker. If your income fluctuates month to month, you can take the average of what you make in a year and divide by 12. 

Once you have calculated your monthly income, take a look at your monthly expenses. Your monthly expenses are everything you spend money on in a month.

To calculate your monthly expenses, take a look at your bank statements to see what you have spent your money on. Alternatively, you could track your spending daily and keep your receipts to add it all up at the end of the month. Use a spending tracker to make adding up your expenses easier. 

Choose a budgeting method

Once you know your monthly income and spending habits, you can start making your budget. There are many different methods of budgeting to choose from. The right budgeting method for you will depend on your goals and current financial situation. Here are some common budgeting methods: 

50/30/20 Budgeting

Best for: budgeting beginners 

Pros: easy to implement; can be adjusted as needed

Cons: may not work for those with more debt or large savings goals 

This method breaks down your spending into three categories:

  1. Needs (50%): Necessary expenses such as your rent, utilities, car payment, and medical bills.

  2. Wants (30%): Discretionary spending including dining out and entertainment. 

  3. Savings and Debt payments (20%): Money put towards paying off debt such as your student loans or saving for future goals. 

The 50/30/20 budgeting method is easy for budgeting beginners. If you are looking for a simple budgeting method to implement, this may work for you! However, this method may not work for individuals with higher debt obligations and those that are looking to save more.  

Zero-Based Budgeting

Best for: taking full control of your spending

Pros: accounts for every single dollar of your income

Cons: intensive and requires precise planning – to the dollar

With zero-based budgeting, every dollar of your income is put to use. With this budgeting method, your income minus your expenses should equal zero. Zero-based budgeting would be best for individuals with a consistent monthly income.

Zero-based budgeting is not the same as living paycheck to paycheck. It means that every dollar of your income is spent thoughtfully and put towards your financial needs, like savings, entertainment, or paying off debt. 

To create this type of budget, dedicate a certain amount of your income to every expense you will have that month (rent, utilities, dining out, entertainment, debt payments, savings etc.) until you have planned for every dollar of your income. It requires precise planning and a great understanding of your monthly income and expenditures. 

This method is more intensive as it requires you to track every single dollar. This may work for those who understand their spending habits and want full control of their spending. It may not be best for those who cannot predict exact expenses for the month or who are new to budgeting. 

Envelope Budgeting 

Best for: precise planning and individuals who like to pay with cash

Pros: tangible reminder of your budget

Cons: requires handling large amounts of cash

Envelope budgeting is similar to zero-based budgeting, but done entirely with cash. Once you decide how much of your income will go to each spending category, get envelopes for each. Label the envelopes for the appropriate category (groceries, utilities, gas, etc.). 

Once you have used all of the money in the envelope for that category, you cannot spend any more in that category until the next month. In case of emergency, you can take money from another envelope. However, if it becomes a habit, that is a sign you are not budgeting effectively. 

This method may work for those that like to have a tangible reminder of their budget. It can also be effective at preventing overspending in each category. Envelope budgeting may not be right for you if you do not feel comfortable holding onto cash or prefer digital transactions. 

Pay-Yourself-First Budgeting

Best for: paying off your debts and contributing to your savings

Pros: leaves room to spend your discretionary money however you like

Cons: does not consider how you could save money on a day-to-day basis

Pay-yourself-first budgeting is simple yet effective, and focuses mostly on debt repayment and savings. 

Simply budget for how much you would like to save or put towards your debt. After you have saved the allotted amount, you can spend your money however you like. Of course, it is still important to prioritize necessary expenses. 

Pay-yourself-first budgeting may work for those that don’t like to budget every single expense, but still want to work towards saving. With this method, you are working towards your goals without having to worry about your discretionary spending. However, if you are looking to be more effective with your money in every category of spending, this may not be for you. 

Track your spending and progress

Once you have chosen a budgeting method and implemented your budget, it is essential to keep track of your progress. Without holding yourself accountable to the budget you just worked so hard to create, you can get off track and miss your financial goals. 

Come up with ways to track your spending and progress. Take the time to review your bank account statements or receipts at the end of each week. Note when you are reaching an expense limit in your discretionary spending and see where you can cut back. 

If you like to keep up to date with your progress digitally, consider downloading a budgeting app. Using a budgeting app or keeping a detailed spreadsheet may motivate you to stick to your budget and remind you of your goals. If you’d rather keep things on pen and paper, start a spending journal. 

Set goals and work towards them

When you are budgeting, it can be easy to lose sight of why you are doing it. Following through with your plans can be overwhelming. The best way to stick with it is to set goals to help you remember why you are budgeting.  

Whether you are trying to put away more money each month to pay off your student loans, or build up an emergency fund, your goals can motivate you. Remember that a strict budget doesn’t have to be forever and your budget will pay off and help achieve your goals. 

Update your budget when necessary

As your financial situation changes, your budget should change as well. If you eventually achieve a higher monthly income, your budget should change to account for that. Similarly, if you encounter large unexpected expenses, you should adjust your budget to account for that as well. 

When you meet your savings goals or pay off your debt, you can adjust your budget to not include those expenses. This will leave extra money for spending on what you enjoy while retaining financial stability. After all, it’s time to enjoy the rewards of sticking with your budget! 

Why Should You Have a Budget?

Budgeting will help you be more thoughtful with how you spend your money. It can also keep you from acquiring more debt by spending more than you have. Whether it’s your first time budgeting or you are budgeting pro, putting a budget together can help you achieve your financial goals. 

Looking to improve even more of your financial wellness? Visit Navient Marketplace for personalized banking and finance products. 

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

Search and compare to get low rates and save.

Get Connected

Stay up to date on the latest offers in the Marketplace by Navient!

By submitting this form, you agree to receive emails from Navient and its subsidiaries.