Share on pinterest
Share on facebook
Share on twitter
Share on linkedin

Here’s how most budgets work:
You assign money to spending categories based on what you expect to earn that month.
Sound familiar?

But I get asked all the time:

What’s the best way to pay bills each month?

It comes down to following these four simple budgeting tips:
1. Give Every Dollar a Job   
2. Save For a Rainy Day   
3. Have an Emergency Fund
4. Live on Last Month’s Income

If you’re a fan of the You Need a Budget software, then you’re no stranger to those principles. They make sense.
The first three are pretty straightforward. Be smart with your money and save it. Build a safety net and don’t panic when things don’t go perfectly.

Still with me?

The challenge for most people is living on last month’s income. What does it mean? And how do you do it?
The idea is simple:
Spend this month, what you earned last month. So how do you make it happen?

Let’s jump in.

Budget Sheet

Want to make budgeting easy?
Join our newsletter & get your free budgeting worksheet:


Your Challenge:napkin with goals written on it

Here’s what it comes down to:
You have to budget your money.

Creating a written budget is the only way this plan will work. So commit yourself to this process by completing all the steps.

I recommend creating a zero-based budget. Zero-based budgets just mean that every dollar gets assigned to a category.

Here’s an example:

example of a zero based budget
So if you have $100 leftover for the month, then you need to assign it somewhere. Fun money, savings, retirement – wherever.
Did you know that people who use zero-based budgets pay off 19% more debt and save 18% more money?

It keeps you accountable and makes you less likely to waste any leftover money. Now let’s get started with the action steps.

Related: The Total Money Makeover: A Proven Plan for Financial Fitness

Step 1: Focus on ‘extra’ money

pink piggy bank

You know the months where you’ll get 3 checks instead of 2? Or if you’re paid weekly, 5 checks instead of 4?
If you stick to your budget, then this means that those bonus checks will be all you need to get a month ahead. 

So here are the months that have 5 weeks for 2021 and 2022:

  • 2021: January, April, July, October, December
  • 2022: April, July, September, December
But to take it a step further, you should start saving money you weren’t planning on having anyway.
For example:

  • Save your tax refund
  • Save your bonus check
  • If you get a raise, stash the extra money away
  • Clear the excess by having a garage sale or selling stuff online

Related: How to Manage Your Money When You Don’t Have Any

Step 2: Save While You Spend

man smiling while looking at cellphone

Do you like saving time and money?

Me too. So I recommend using a cash back app called Rakuten. I’m sure you’ve seen the commercials for Rakuten, but in case you haven’t, here’s what you do:
You sign up for an Rakuten account (it’s free) and use the search bar to find the retailer you want to shop with.

Here’s what that looks like: 

rakuten homepage
As you make purchases, you’ll earn cashback. I’ve been using Rakuten since 2013 and I’ve earned over $1,000.

It’s been a great way to save money without clipping coupons. Because if you’re buying something you’d normally purchase anyway, why not save money doing it?

Note: Our Rakuten link gives you a $10 bonus for signing up and shopping.

Step 3: Create an Emergency Fund

man showing wallet full of money

Have you heard of emergency funds? For these simple budgeting tips, let’s talk about your safety net. 

Here’s why it’s important:
Your emergency fund is what prevents you from going into debt when an unexpected expense pops up.
But here’s the thing:
Getting a month ahead essentially functions as a one-month emergency buffer. It’s your starting point.

The ultimate goal is to become debt-free and save for 3-6 months worth of household expenses.
But if you have debt (not counting your mortgage), then you should start by saving $1,000 first. If you’re completely debt-free, then you can skip to step 5 of this article. 

Related: Get a Financial Life: Personal Finance in Your Twenties and Thirties

Step 4: Take the weight off

woman budgeting

Do you ever feel overwhelmed by your debt?

We’ve all felt that feeling. 
But here’s a common trap many people fall into:
They try to get a month ahead while still having debt. And if that’s you, I want to redirect your focus.
So you’re going to factor all your debt payments into your “get ahead” budget?
Where does that leave you? Still in debt.
Not good. So your first step is to save $1,000 for your emergency fund then focus on becoming debt-free.

Your $1,000 fund will be your barrier against new debt. And becoming debt-free will reduce your monthly bills. That’s what we want.

So here’s the deal:
For many of us, we come to the realization that throwing money at debt without a plan isn’t the quickest way to get rid of it.

So choose a debt payoff method instead.

I recommend the debt snowball method or the avalanche method. And if you’re unsure which one is right for you, then I want you to read this first:
Debt Snowball vs. Debt Avalanche – Which One Should I Pick?
The last point I want to touch on with debt is this:
When you’re paying off debt, pause on saving in other areas. Yep, I mean it. To really tackle your debt as quickly as possible, you’ll need gazelle intensity.

Put a pause on retirement contributions and vacation sinking funds. Pause on trying to pay your mortgage off early.
Follow these simple budgeting tips and you’ll be successful.

Plus, you’ll pick back up your savings and retirement once you become debt-free. And you’ll be able to make up for it 10 times over.

Related: Why Didn’t They Teach Me This in School?: 99 Money Management Principles to Live By

Step 5: Look for Flexibility

man typing on laptop

Two things I want to talk about here are:
1. Lowering your interest rate     
2. Working with your due dates

First things first: interest rates.
Have you ever noticed that most of your payment goes toward interest?
So if you only make minimum payments on your credit cards, it can take years and years to pay them off.
So what should you do?
First, stop adding more debt. Step away from the credit cards. Secondly, use a company like Credible to lower your interest rate for you.

Credible offers two free services:
     1. Student Loan Refinancing
     2. Personal Loans

What is student loan refinancing?

When they refinance your loans, they match you with a better loan with a lower interest rate. A lower interest rate will save you hundreds – if not thousands – over the course of your loan.

And according to their research, Credible users save an average of $18,886 over the life of their loan.
If you have multiple loans, this means they’ll combine everything into a new, single loan. This makes keeping track of your bills simple.
(You can also refinance if you have just one loan) 

What are personal loans?
Personal loans are ideal for credit cards and other types of debt. If you carry a high-interest rate on your credit cards, for example, then you can move that balance over to a personal loan.
Bottom line?
Know your options. Don’t feel stuck with a high-interest rate. Do what you can to lower it.
Note: You can read more about Credible in our Credible Review

And here’s another one of our simple budgeting tips:
Negotiate your due dates if you’re having trouble paying bills because they’re due around the same time.

Spreading out your bills over the month can allow you to have enough ‘wiggle’ room.

This can be as simple as changing your due dates online or by making a quick call to customer service.
And when it comes down to paying your bills on time or changing the due dates – trust me – they’ll be willing to work with you.
Once that’s done, you can organize your due dates and set reminders to help you stay on track.

Step 6: Cut Low-Value Expenses

man writing his budget

Here’s the bottom line:
Most of us can find ways to cut expenses from our budget. We’ve made it far too easy on ourselves to spend money.
Plus, we’re creatures of habit. We shop at the same places, eat at the same restaurants, and still swipe the same credit cards.
How much are your old spending habits costing you?
Financial success comes down to this:
Change the way you manage your money, adopt better habits, and stick to them.

So use these simple budgeting tips to your advantage:
Pull out your bank and credit card statements and take a hard look at your expenses.
Look at your receipts for the last four weeks. If you could cut out three or four things, what would they be?
Here are some tricks I use:
1. Remove Your Card Information from Online Retailers
And while you’re at it, unsubscribe from retailers newsletters.

2. Beware of the “free” trials
You know, the ones you forget to cancel before the trial runs out. Also, beware of “limited time only” deals.
Marketers are smart. They know you’re more likely to buy if there’s a time limit.

3. Bank Fees
Have you checked your bank statements lately?
Not saying any names, but at my previous bank, there was a fee for everything. single. thing.
An account maintenance fee here, a card swipe fee there, and even a fee for not keeping a certain amount of money in the account itself. What kind of weird punishment is that?
So it’s the main reason I switched to a Capital One 360 Account. No fees, easy to set up, and I can use my debit card without charges.

4. Cancel Anything You Aren’t Using
Like gym memberships and subscription services.
I cut the cable last year from $170/month to $8.25/month (or $99/year) by switching to Amazon Instant Video instead.
I just didn’t feel like we were getting that much use out of cable. Definitely not enough to justify paying that much for it.

Step 7: Earn Extra Money 

picture of organized desk

We could all use a little extra money, right?

Here’s the thing:

Some people already live on a bare bones budget.
They already follow these simple budgeting tips. They cook at home, meal plan, trade in their car, lower their interest rates…and they still struggle to get ahead.

But if there’s one thing that being tight on money teaches you – it’s how to hustle.
So there are lots of ways to make money. Plasma donations, cleaning houses, babysitting, and selling stuff you don’t need – show you that earning money is sometimes about thinking outside of the box.
We talk about more side hustles in our article:

How I Made $5,500 Last Month From Home.
So if you missed it, check it out.

Step 8: Create Savings Goals

woman using laptop

Successful people set goals for their money.
Do you want to save for retirement?
Set aside a down payment for a new home?
Go back to school? 

Know your purpose. Once you’ve gone through the steps of paying off debt and setting aside for a rainy day, this is the next chapter of your story.

Final Thoughts:

Here’s the best part about using this strategy:

A) It reduces stress 
You won’t worry about ‘making ends meet’ because you’ll have money to cover everything.
What you earned in January covers February, and so on and so forth.

B) Budgeting becomes easier
Budgeting becomes easier when you aren’t strapped for money.
C) It sets a strong precedent for spending less than you earn
The most simple yet overlooked financial principle is this:
Live within your means. Credit cards and car payments make us lose sight of living within our means.
We can “afford” it because we can make the monthly payments.

At least that’s what we tell ourselves.

But here’s the deal:

When you get a month ahead, you’re actively living within your means. And that sets a powerful financial precedent. 
D) You can quit timing your bills
You don’t have to worry about being late on bills. You don’t have to wait around until the end of the pay period to pay them.
Think about how good that would feel.

You’ll be glad you did.

Recapping the Tips for Living on Last Month’s Income

  • Budget your money using a zero-based budget
  • Focus on the extra money 
    • Extra paycheck weeks
    • Tax refunds, raises, bonus checks
  • Build a $1,000 emergency fund
  • Use the debt snowball to pay off debt
  • Cut out low-value expenses
  • Create savings goals 
Budget Sheet

Want to make budgeting easy?
Join our newsletter & get your free budgeting worksheet:


Are you wondering how to start living on last months income? It's a great financial goal to work towards. To achieve it, you need to adjust your budget or learn how to budget. Once you've got your budget in order, you can focus on saving money and getting a month ahead on your bills. #budget #personalfinance #moneytips #daveramsey


Get your free credit score with Credit Sesame. Checking takes less than 2 minutes and will not affect your score.

Learn About Budgeting

Join Our Financial Newsletter

Budget sheet
Want to make budgeting easy?
Join our newsletter & get your free budgeting worksheet: