When you’re broke, you may be feeling totally drained and overwhelmed. That’s not on you — neuroscience research shows that when you’re poor, your brain actually sends messages to your body that it should be stressed and afraid.
But it’s imperative to dig yourself out of a bad mental state when you’re broke, because feeling well and able is key to making smart financial decisions. And you can start really small — just by budgeting.
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Yes, even when you’re broke, you must make and stick to a budget. And doing so can actually help you get to a more financially stable and happy place.
Here’s a look at how budgeting can help you when you’re broke.
Budgeting Gives You an Understanding of Your Spending Patterns
You may have reasons beyond your control that are making you broke — e.g., high cost of living in your area, a recent layoff, poor planning for retirement — but such factors may not represent the full picture.
You may also be spending in harmful ways. Budgeting can help you see this all clearly by giving you a better understanding of your spending patterns.
“Creating a budget provides a clearer snapshot of your financial situation,” said Raymond Quisumbing, MBA, author and registered financial planner at Oh My Finance. “It helps you identify the expenses that you spend a lot on, such as dining out, groceries and others. In my case, eating out has been one of my major expenses.”
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Budgeting Helps You Prioritize Essentials
You may have a general idea of your expenses and how much they eat away at your bank account, but it really helps to itemize them. You can use a spreadsheet on your computer or even do it by hand — so long as you keep the list within close reach always.
“By breaking down your expenses and listing them all into categories, you have better control over where your limited income should be allocated,” Quisumbing said.
Budgeting Helps You Prioritize Debt Management
Any budgeting pro or financial advisor will tell you that if you want to lift yourself out of being broke, you need to really focus on paying down debt.
“Budgeting helps you prioritize debt repayment first, before spending for wants,” Quisumbing said.
Budgeting Helps You Cut Back on Non-Essentials
Do you really need that streaming service subscription? What about that home renovation? Or that shiny new appliance?
Budgeting helps you clearly see the non-essential categories you’re spending on so that you can pare down your spending there.
“Budgeting helps you identify discretionary spending, such as buying the latest gadget, which could be delayed or even cut,” Quisumbing said.
Budgeting Helps You With Emergency Fund Building
If your emergency fund is running on empty, budgeting can help you replenish it, because it steers you to focus on debt repayment, which will open up your money world to more saving opportunities.
“When you’re broke, it can be easy to fall back on credit to get by. However, accumulating expensive debt means more of your hard-earned dollars go toward paying interest instead of your other bills or discretionary spending,” said Leslie H. Tayne, Esq. “A budget can help you set aside even small amounts for emergencies, reducing the need for high interest loans or credit cards in a crisis.”
Budgeting Helps You Be Inspired To Negotiate Better Deals
Do you know whether you’re getting the best price on, say, a utility bill? Budgeting could help you suss this out and get better deals.
“Understanding your budget helps you explore more affordable options for basic essentials, such as communication and electricity,” Quisumbing said.
Budgeting Helps You Be More Realistic
Budgeting can help bring you into a realistic perspective. You can truly know what you can and can’t afford. This may lead to a decision to tie in an additional income stream.
“By knowing your income limit, you can further explore other ways to boost your income side, such as taking on additional work or adding a side hustle,” Quisumbing said.
Budgeting Helps You Build Better Habits
The more closely you pay attention to and stay loyal to your budget, the more likely you’ll be able to build better financial habits that can help you even when you’re in a better spot, monetarily.
“Regular budgeting helps you stick to a plan and become more disciplined in managing your money, which is an important skill whether you’re broke or more financially comfortable,” Tayne said.
Budgeting Helps You Track Your Progress and Your Achievements
One of the coolest perks of budgeting is that the more you stick to it, the better you can track your progress, which should be motivating.
“Regular budget tracking allows you to measure your savings progress and your financial progress towards financial freedom,” Quisumbing said.
Budgeting Helps You De-Stress
As noted earlier, being broke is super stressful, but budgeting can help alleviate some of that stress.
“A well-structured budget helps give peace of mind, allowing one to focus energies on more productive matters,” Quisumbing said.
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This article originally appeared on GOBankingRates.com: Budgeting When You’re Broke: 10 Ways It Can Help
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
