How to Make a Budget on a Fixed Income

Happiness and financial management are a match made in heaven.

Living on a fixed income has its pros and cons, but you can work both to your advantage. Enhance the good points, work to lessen the not-so-great points, and you’ll create a more stable, comfortable lifestyle.

By definition, fixed incomes don’t vary, at least not by much. The downside is that inflation could impact its value, and you can’t predict to what degree. The best course of action is the same, whether your income is fixed or not: Cut expenses and build up savings. You might have a bit less to work with, but at least you know what you’ve got.

Understand Your Income

Before you can create a workable, fixed-income budget, determine exactly what you’ve got. This should be the simplest step. If you’re using budget software, it’s easier because you can enter the information once, and the software does the rest.

Social Security and pension payments, and any other set, dependable income gets tallied. This lets you reasonably predict your income for weeks, months, and even years into the future. That’s a benefit that people who don’t live on a fixed income can’t enjoy.

Determine Your Monthly Expenses

Everything that you pay for regularly, such as a mortgage, utilities, groceries, vehicle loans and credit cards, are essentially fixed. These are the expenses that you can’t simply cut out. You’re probably living within your means, so determining expenses is just another step toward helping you manage your money more wisely.

If your income doesn’t outweigh your expenses, a good budget can help you reach a more comfortable position. It won’t happen quickly, but you might refinance a loan for a better rate, cut back on utility usage, and even negotiate for reduced interest on credit cards. Watching for sales and clipping coupons can help save more money on groceries than you might realize. MSN Money recommends the 50/30/20 budget plan. Fixed expenses should consume no more than 50 percent of your income.

Calculate Non-Essential Expenses

Anything that you don’t have to spend is non-essential. Dining out, vacations, sending a bit of money to help out a grandson in college, and new landscaping are all expenses that you can change if need be. This is the most challenging part of creating a budget, since non-essentials are sometimes difficult to track, and surprising once you add them up.

Save receipts, especially for cash purchases, and check credit card and bank statements. These all help you see in black and white how much is spent, but more important, Citigroup says they help you see where you can really save money. Using the 50/30/20 plan, trim variable expenses to no more than 30 percent of your income. With budget software, your expenses are in one easy-to read place.

It’s easier than you think.

Start Saving Money

Savings aren’t just for people who are planning for retirement years in the future. Everyone needs a safety net. The money saved from cutting expenses can provide security to cover the unexpected such as a plumbing leak, vehicle repair, broken window, or sprained thumb. As you might expect, the “20 percent” portion of the 50/30/20 plan is dedicated to savings.

MSN Money also recommends that even very low income families need at least $500 in savings for emergencies. It might take months to build, but it could save a great deal of stress later. The more you can cut, the faster you can save. Once you have $500, then you can build savings at a pace that’s more comfortable to you.

Budgeting on a fixed income can help reduce stress, build security, and put you in control of your money. With Mint.com’s budget solutions, it’s easier than ever before, and it’s free.

Sign up for your Mint.com account today, and build a budget that you can live with.

Carole Oldroyd is a freelance writer who helps families develop and stick to a budget.