Ask A Guide: Do I need a budget when I’m living paycheck-to-paycheck?


Living paycheck-to-paycheck is tough. It’s hard to get anything going, when you’re just trying to stay afloat. How do you prioritize? Where do you start?

If you’re in this position, you’ve probably had a friendly authority figure recommend creating a budget. Ah, yes, classic advice. But does it make sense for you?

So, everyone’s situation is different, and I’m not a financial planner, but my general recommendation for people in this stage is something in the middle:  Yes, if you’re upside-down on your finances, you need to do something. But, no, it doesn’t have to be a complete budget.

Here’s what I would recommend:

1. Identify Needs

Identify the things necessary for you to live. No frills, just the basics. Make sure to consider the following:

  • Monthly debt minimums (car, loans, credit cards)

  • Housing

  • Insurance(s)

  • Utilities/Garbage

  • Phone/Internet

  • Food (self-prepared)

  • Prescriptions (if applicable)

  • Work-related travel w/wear and tear (round-trip miles*.50*30 days)

  • Clothing (basics to maintain)

To make things as simple as possible, round up your expenses to the nearest 50 or 100 (For example, if your phone bill is $89.90, round that up to $100). If you are unsure of costs for utilities, try googling average prices in your area and start there.

Don’t get stuck, here! It can be a little overwhelming, trying to figure out all these numbers, the first time, but stick with it! Understanding your ‘Needs’ number is so important. From here, you have the power to design a plan and a process for every other decision you make, moving forward.


2. Identify “Discretionary” Income  

Next, identify your discretionary income. Your discretionary income is the money you have left over, after your after all of your needs and obligations are met.

Figuring out this number is easy. Just take what you get paid (not including taxes) and subtract the number you got from Step 1.

So, say your monthly ‘Needs” obligations comes out to $2500. If you make $3000 per month (again, after taxes are taken out), then your “Discretionary Income” is $500.

“Discretionary” is based on the word “discretion,” which literally means “the freedom to decide what should be done in a particular situation.” So, guess what? When it comes to your discretionary income, you get to use it however you want!


3. Enjoy the freedom to choose

Again, with discretionary income, it’s totally up to you: splurge or save!

If you’re living paycheck-to-paycheck, this will be a good indicator of what you can change: If your Discretionary Income is $0, then budgeting or a lot of extra money-management isn’t going to help. To improve your financial situation, you’ll either need to (a) Make more money, or (b) Take another look at what you consider to be ‘Needs.’ If you can reduce any of the expenses in that ‘Needs’ category, you’ll increase your discretionary income!

If you do have more than $0 in that column, enjoy the freedom you have, to choose where that goes! You don’t need to sort that money into individual expense categories or do a lot of budgeting… just keep track of what you’re spending in non-need categories, and make sure you’re not spending more than that Discretionary Spending limit. Other than that, you can do what you want!

If you’re really looking to escape the paycheck-to-paycheck trap, the key is really to make sure you’re covering next month’s needs, with this month’s pay. As long as you do that, you won’t fall behind.

So, in the end. Don’t worry too much about “budgeting” when you are living paycheck-to-paycheck. Instead, take a few simple steps: identify your needs, identify your discretionary income, and enjoy the freedom to choose, “To Save or To Splurge?” with what’s leftover!




Jason Young is our go-to guy for all things personal finance. He’s spent 14+ years in community banks, leading teams focused on digital transformation and customer support. He’s heard many of our pain points and worked on building solutions to meet them. Now he’s sharing what he has learned to help you. Plus, he likes gaming, social media, and new tech so he speaks our language!



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