How to Create a Bare-Bones Budget When You’re in Debt

A bare-bones budget cuts your spending down to the essentials for a set period of time. You total your must-pay costs, cut everything else, and put the difference toward a goal like an emergency fund or your monthly debt payments. Here’s how to build one, when it helps, and how to stick with it. 

What Is a Bare-Bones Budget?

A bare-bones budget is a temporary spending plan that only includes necessary expenses. A bare-bones budget could help you cut unnecessary spending and make every dollar serve a specific purpose.

Debt freedom is a goal you can reach. As you begin your debt payoff journey, changing how you manage and spend your money could get you there even faster. A bare-bones budget is a great way to identify non-essential spending. That could help you free up more money for your financial goals. Bare-bones budgeting is far from a lavish lifestyle, but it could make your money stretch farther.

When to Use a Bare-Bones Budget

For most people, a bare-bones budget works great as a short-term tool, not a permanent lifestyle. Consider one in these situations:

• Income loss or a financial emergency. A bare-bones budget may help you cover housing, food, and utilities while you stabilize your finances after a layoff, a pay cut, or an unexpected medical bill.

• A large savings goal. If you want to build an emergency fund or save for a large purchase in a short period of time, cutting nonessential spending could speed up your timeline.

• Debt repayment. Directing extra cash toward what you owe could help you make faster progress on your debt, especially unsecured debt like credit card balances.

If your unsecured debt feels unmanageable even on a bare-bones budget, a debt relief program could help you address it directly. 

How to Create a Bare-Bones Budget

You’ll need to track your expenses and income somewhere. If you prefer to enter the details yourself, here’s a free budget worksheet to get you started. You could also use a budgeting app, preferably free. Look for one that syncs automatically with your accounts and lets you choose a category each transaction. 

Here’s how to create your bare-bones budget.

1. Start with your take-home pay

Before you list expenses, add up your monthly take-home pay, meaning your income after taxes. If your income changes from month to month, use your average from the last three to six months. This is the total your bare-bones budget has to work with, so keep it close by as you work through the next steps. The Consumer Financial Protection Bureau offers a budgeting guide and worksheet you can use alongside your own tracking.

2. Identify essential expenses

The first step is to outline your essential expenses. Make a list of bills that must be paid, like your rent or mortgage, electric bill, transportation expenses, and groceries. 

Need help narrowing down your list of necessary expenses? Look at your bank and credit card statements from the last several months and review every transaction. 

Write down expenses and the total monthly cost. If the amount fluctuates (like grocery spending), calculate your average over the last three to six months. 

3. Cut out non-essential spending 

Next comes the harder part. Review your expenses to find some that you could cut out entirely. Sometimes this involves difficult choices. For example, summer camp for the kids is a want, not a need, but it might not feel that way. If your goal is a bare-bones budget, try to cut every expense that isn’t truly essential. You can add those items back in later if you want to.

Even your essential expenses might have some wiggle room. Try to reduce them. Here are a few ideas:

• Lower your grocery bill. Shop at discount food retailers, buy on-sale and store-brand items, and use coupons. 

• Unlock affordable housing. Add a roommate, move someplace cheaper, move back in with family, or rent out your garage. Any of these could make your housing costs more affordable. 

• Explore alternative transportation solutions. Transportation is essential but it doesn’t have to be a car. Could you sell your car and take public transit while you’re in debt payoff mode?

• Shop around to lower your insurance. Every now and then, it’s a good idea to comparison-shop your insurance. Gather quotes from other providers to see if you can reduce your premiums. 

4. Allocate extra money toward debt repayment

Take those dollars that you saved by cutting and reducing expenses and apply them to your debt. Every additional dollar gets you closer to your goal.

Which debts should you pay off first? Choose the debt repayment strategy that feels best for you. The debt avalanche strategy focuses on eliminating the most expensive debt first. The debt snowball method focuses on paying off the smallest debt first. 

You can learn more about the benefits of each debt payoff strategy in this Debt Snowball or Debt Avalanche guide. 

5. Choose a simple way to allocate your savings

Give every dollar of your take-home pay a job. Once your essential expenses are covered, decide in advance where the rest goes, whether that’s extra debt payments, an emergency fund, or a mix of both. 

Unlike a 50/30/20 budget, which sets aside 30% of income for wants, a bare-bones budget puts nearly all of your income toward needs and savings or debt payments. Decide in advance where extra funds will go. That plan could make it easier to stick with your budget when an unplanned expense comes up.

Ways a Bare-Bones Budget Helps When You’re in Debt

If you’re in debt, a bare-bones budget could help you free up cash for debt repayment. The sooner you clear your debts, the sooner your debt payments can go back into your budget to be used as you choose.  

A bare-bones budget can also help you regain control over your personal finances. You can boost your spending and money management skills. In the future, you can carefully choose only debts that improve your life. It’s never too late to level up your personal finance knowledge. Budgeting can help you do that. 

People just like you are seeking debt relief in California and across the country. The first step is the most important one—explore your options.

Tips for Sticking to a Bare-bones Budget

Use mobile apps to monitor your progress 

Technology can help you stick to your budget. You can use a mobile app to outline your monthly bare-bones budget and track your progress. You may find it easier to remain motivated when you can track your progress easily. 

Sleep on big purchases

Before you place an online order or pay for a non-essential expense, sleep on it. Remove your credit card number from your favorite shopping sites. Give yourself more time to consider a purchase to help reduce impulse buys. 

Get an accountability partner

Partnering up with a close friend or family member who's also working on financial goals is a great strategy. You can lean on each other for support and motivate each other to stay on track. Knowing you’re not alone in wanting a better future can be a game-changer. 

When to Stop Using a Bare-Bones Budget

Your current bare-bones budget doesn't have to be a permanent spending plan. You can stop using it once you've reached your financial milestone. You’ll probably want to follow a less-restrictive budget once you're out of debt. But you might be surprised at how much you dislike spending money on things that don’t matter in the long run. It’ll be easier to be more mindful about your spending.

Following a Bare-Bones Budget Now Could Pay Off in the Long Term

Adjusting to your new spending plan may take time, but don't give up. You can make significant progress and carve out a new financial future by following a bare-bones budget. Your efforts could have a lasting impact on your life.

Don’t be afraid to ask for help. Talk to a debt expert if you need guidance. 

If you’re still struggling on a bare-bones budget, you might be a candidate for debt settlement. That’s when you get your creditors to accept less than the full amount you owe, and forgive the rest. Get a free evaluation from a reputable debt relief company.