I have a number of Substack newsletter subscriptions. Fewer than many but more than some. I try to at least skip-read each of the newsletters. The week before last, I read something that startled me by its simplicity and directness. Poor people MUST budget. There isn’t any “learning to budget” type of situation. However, poor people have a somewhat different type of budgeting.
When a person, or family, doesn’t have enough money for all needs, the first step is to determine the minimum things needed to survive. There are items that most of us think are mandatory that may not make the list. For example — housing. What is NEEDED is sufficient warmth (in colder climates — one reason why certain areas of the country attract more of the homeless) and shelter from the “elements” (primarily rain/snow, direct sun, and wind) — plus sufficient clothes to meet societal requirement and add to survival in the weather. It isn’t “ideal”, but a minimum warmth/shelter does not require a permanent structure. Health care is not mandatory — until it is. The son of a friend of mine lived a homeless life until a leg started to develop gangrene from an infection and, left untreated, led to a very early (in his early 30s) death. In summary, a list of truly minimum will be calories, shelter/warmth, and safety from attacks. None are assured without income but approaches can be made to live on very little.
Beyond these very basic foundational survival needs, it is necessary to triage remaining items. People are sometimes shocked to see a homeless person talking into a cellphone (though it is also possible they are talking into a non-working cellphone). If you have no permanent residence, have no owned means of transportation, and find yourself and your family/friends in need of being spread out through a wide area to make minimal needs then a cellphone becomes a necessity rather than a luxury. It may be high on the options beyond the minimum. Other things may be possible, depending on the level of income that exists — health care, better food, better clothing, potential permanent housing, It becomes similar to checking the temperature before going outside and determining the need for layers of clothing. If you have $X more than minimum, you get A. If $2X more than minimum, you get A, B, and C. And so forth. This is not what is usually considered to be budgeting — it is more of a skeletal envelope that gets filled when more money is available.
Although I pray that I never again enter into that scenario of being poor (I was a part of it within my family for a short period while growing up), it can be a blessing later to know what is really needed, what is optional, and how to decide which is which. My parents grew up during the Great Depression and many, among those who survived, came out of that period with a feeling of monetary insecurity that eliminated “excess” spending and mandated a tight control of the budget. It may be a significant factor about the amount of savings of the “boomer” generation — the financial survival of their parents followed by excess budget-tightening within their growing up period. When you spend less than you make, then you save. That rule is still true.
For those not in an extremely poor situation, budgeting is a matter of taking that sufficient amount of income, allocating what is needed, and then deciding how to split up what is in excess of the “nut” for the period of time. For most of my adult life, I have had the luxury of not having to watch my spending very closely. (There was one period when our company was not doing well when I had to keep a “running total” of items as I put them into the grocery cart in order to not be surprised at check-out. I hated it.)
When you know you have enough, you can create a budget by examining all of your purchases for the previous month. Write down all of the items that you “had” to purchase. Be aware of the other “luxury” items that you didn’t really need. The items on your list make the core of your budget and the total is your monthly “nut”. Minimally, you also need to add a “disaster fund” — aim at 10% of your wages as you receive them. You will find that you have missed some items that are paid quarterly or just missed the edges of the month you reviewed. Add them onto your nut as you find them. In particular, watch out for “subscriptions”.
With your nut and disaster fund taken care of, the remainder is “discretionary”. I recommend investing 1/3 to 1/2 of this “extra”. Then enjoy the final amount— but keep track so you do not exceed your budget.
What if you have no spending history (just moved into your own place for the first time) or aren’t sure if you will have enough. You have to put together a tentative budget. Try to think of all of the things you need to pay for — rent, food, transportation, utilities, etc. Try to limit the items you consider necessary. There are example budgets as well as budget templates available free on the Internet.
If you find that you are running out of money before your next budget period, re-examine your expenses. Something is increasing your nut — or invading it by not being on either the nut budget or any discretionary budget. You shouldn’t have any surprises if you make your budget and stick to it. If you cannot mentally keep track of any credit card/delayed payment items — write them down!
A budget is a luxurious thing because it says that you have money available for more than the bare minimum. It is a luxury that not everyone hase. Congratulations!
