Budgeting is a tough skill for anyone to master, but the difficulty increases for those living on a low income. Without any wiggle room for financial mistakes, it can be all too easy to rely on credit cards and payday loans to make ends meet.
But with a little organization and resourcefulness, it is possible to live well, save money, and even own a home without pulling in a huge paycheck.
An Inspirational Family Example
Samantha Luh, a 23-year-old mother of two and her husband John, 24, of Grove City, Ohio, understand the importance of budgeting on a limited income very well. Samantha works 30 hours per week as a medical assistant for $11 an hour, and John earns $13 per hour working as a manager for a roofing company.
Both Luhs' hours can be variable, and John will go from working 40+ per week in the summer to about ten hours each week in the winter. Their 2015 earnings will likely be less than $40,000 for the family of four. (For comparison, the median income for their community is just over $65,000.)
Despite those financial challenges, the Luhs have created a rich life for themselves and their two sons. For instance, Samantha organizes their finances to make sure she never misses a birthday or gift-giving occasion, and she is justifiably proud of the recent purchase of their first house.
Here is how Samantha is able to make their limited budget work for them.
I spoke to Samantha on a Thursday, and she told me that she only had $0.30 in her checking account at that moment — but she was getting her next paycheck the following day, and she already knew where that money was going.
"We are currently living paycheck-to-paycheck, which I don't like," she says, "but it means that I plan where our money goes before we even have it." Since most of their bills are due on the first of the month, they expect to have very little money leftover from their first paychecks of the month. Their second paychecks go toward their groceries and gas for the month.
Any "extra" money in a paycheck is saved up to spend on non-essentials, such as gifts. "I love buying presents for people," Samantha says, "so I look for things throughout the year to buy for my loved ones. I start Christmas shopping in January and I'm usually done by August. I keep an eye out for things my kids and family and friends would love, and either wait for a sale or save up for the item. That way I don't feel time pressure to buy."
Though their emergency fund dropped from $2000 to $500 last year when they had to replace their 25-year-old secondhand bed, Samantha has a plan in place for that, too. Since they both bought a home and had a baby in 2015, they anticipate a larger-than-usual tax refund in 2016, which they will immediately put into their savings account to cushion them from future financial hiccups.
What sets the Luhs apart from other young couples living on a low income is their willingness to prioritize the things that matter most to them — like owning a home.
Starting two years ago, Samantha and John worked to build up their credit and save money for a down payment for the $101,000 home they bought earlier this year. Though they were only able to put $5,000 down on the home, they were able to add another $2,000 to the down payment by asking the sellers to help with closing costs. Now they are living in a place they own, and their mortgage is only $25 more per month than they spent on rent.
But prioritizing for the Luhs is about more than just planning for big purchases. For instance, they know what can be trimmed from the budget if they ever have a shortfall. "We can pay all of our bills right now, but we know that the cell phones will go if there is ever a month when we can't make ends meet," she explains. "That's why we have cell phones without contracts, so we can cancel them if we ever need to."
Since their priorities are so clearly defined, impulse buying is simply not done in the Luh household. If they are ever tempted by a purchase, Samantha stops to think through whether or not it's really necessary. And if they do decide to buy something, she figures out a way to save up for it over the next couple of weeks, even if it's only a $20 purchase.
Anyone who has had to live on a severely limited budget knows how much of a drag it can be. But Samantha and John have found several creative ways to keep fun in the budget without sacrificing their bottom line.
In particular, they both love movies but they can't afford the $10-per-ticket price at the local multiplex. So they shop the $5 bargain DVD bin for movies they want to watch, and for half the price of a theater ticket, they have flicks on hand that they can watch over and over.
In addition, Samantha squirrels away the gift cards that they receive as presents. "It pays to spread them out," she says. "If we're getting cabin fever, I can look to see what gift cards we still have, and then we can afford to do something fun without spending our own money."
At the time of our conversation, Samantha and John's wedding anniversary was approaching. They planned to celebrate at The Cheesecake Factory, because they had a gift card.
Living Well is a Matter of Intention
By any metric, Samantha and John are bringing in a modest income, and many young parents would find it challenging to raise two kids on so little money. But the fact that the Luhs are mindful about their finances and refuse to let anyone else's priorities affect them means their life is full and satisfying.
"It can be kind of stressful to cut it so close," Samantha says, "but we know our kids are okay. And that's the important thing."