Find out the meaning behind a shoestring budget, how it works and what it could mean for your financial life.
Definition and Example of a Shoestring Budget
A shoestring budget is a type of budget you create when your money is limited and you need to keep a tight rein on your spending. The most significant difference between a shoestring budget and any other budget is that there’s not enough incoming money to comfortably cover your expenses. Not having any wiggle available means you’ll need to get creative and put in some effort to make every dollar stretch as much as possible, financial attorney Leslie Tayne told The Balance in an email One common example is a college student who has little to no income and thousands of dollars in tuition and fees. As a result, they often live on a shoestring budget to minimize overall expenses, financial attorney David Aylor told The Balance in an email. That’s why the stereotypical grocery budget for college students consists of grocery-store ramen noodles rather than nightly trips to a ramen restaurant.
How Does a Shoestring Budget Work?
The idea behind how a shoestring budget works is that you cut back your discretionary spending or curtail it greatly to take care of higher-priority expenses. That typically means skipping restaurants and bars to make sure you’ve got money for the basic necessities such as food, shelter, and transportation. If your finances are tight, you can create a shoestring budget by determining your monthly cash flow and expenses. Then, continuously look for ways to save money and reduce your spending to the lowest level possible, Tayne said. You can do that by trying things like:
Clipping couponsShopping at thrift storesCanceling unused subscriptionsCarpooling to workGetting a roommateShopping around for cheaper insurance and other servicesA self-imposed shopping banReducing how many times you eat outGoing the DIY route to repair your home or car
Types of Shoestring Budgets
Shoestring Budgets for Home Projects
Working with a shoestring budget is not necessarily something that just occurs in households experiencing low income, either. For instance, an upper-middle-class family might want to install a backyard pool. The average cost for the pool they want is $60,000. However, they only have enough money to spend $40,000. So when they meet with the contractor, the family tells her that they need to find ways to cut some costs because they are working with a shoestring budget.
Shoestring Budget for Groceries
A good rule of thumb for grocery spending in a shoestring budget is to look at the Department of Agriculture’s (USDA) “Cost of Food at Home” chart, which offers weekly and monthly food-spending budgets based on age. The chart includes low, moderate, and liberal budgets for five age groups for children, men, and women. Using the USDA’s monthly low-cost plan is one way to calibrate a shoestring budget for groceries (October 2021 data):
Female 19-50 years old: $229.50Male 19-50 years old: $264.40Child 1-11 years old: $138.70-$226.70
By the USDA standards, a shoestring food budget would be $459 per month for female partners, $528.80 for male partners, and $493.90 for a male-female partnership.
Shoestring Budgets for Startups
Shoestring budgets occur in business, too. For example, you may want to start a small business but don’t have much money to do it. Because you’re on a shoestring budget, you may opt to run the business out of your home than in a storefront, get capital from friends, family, and crowdfunding, and leverage social media to do marketing you’d otherwise have to pay for via a third party.
