• Account for every dollar that comes in and goes out of your bank account.money image by Horticulture from Fotolia.com
  
  Living on a fixed income is often associated with the retirement years. Others find themselves living on fixed incomes because of disability or the loss of a job. The financial situation requires careful planning and spending. Cutting back and using the income you have wisely is crucial.
  
  

Budget

• A budget is the first step to living on a fixed income. Determine exactly how much money is coming in each month. Write a list of every bill and other expenses such as groceries and gas. Total the expenses list to determine how much is going out each month. This will tell you how much extra you have each month for savings or other extra expenses. Saving the money is a good idea in case you overspend one month or have an unexpected expense such as a large medical bill or car repair.
  
  

Document Spending

• Documenting every penny that you spend for a few weeks to a month gives you a good idea of where your money is going. Most people overlook the small expenses, but a few dollars here and there adds up quickly. One too many meals out in a given month can put you over your spending limit for the month if you don't have much extra after all of your bills. Keep every receipt for the selected period as a record. Total how much you spend. If the amount is more than you thought, break it down to determine exactly where the money went. Use this exercise to find ways to cut back on spending.
  
  

Cut Costs

• Cutting costs helps you stay within your fixed income or build up savings as a safety net. Start with the flexible expenses such as groceries. Using coupons and stocking up when items are on sale helps cut down on your grocery budget. Shop around with different insurance companies to make sure your car and auto insurance policies are as low as possible. Consider raising deductibles to lower the insurance premium. Maintain your car, home and other possessions so they will last longer and need fewer repairs. Borrow books and movies from the library instead of buying them.
  
  

Envelope Method

• The envelope method helps you stay within the allotted amount for expenses such as groceries and entertainment. Withdraw the amount of money designated to each of these areas in the budget. Place the money in a separate envelope for each expense. For example, if you have budgeted $300 a month for groceries, place the $300 in an envelope marked "Groceries." This allows you to easily track how much you have left for the month. If you have money left over, put it in savings or carry it over for the next month.