Inflation and rising interest rates have made saving difficult, especially if you’re not in the top income bracket. Relentless monthly costs and unexpected expenses can put a hole in your budget and derail your savings efforts. And saving money on low-income can be challenging. However, it’s possible to stabilize your finances and build your savings account. Here are eight ways to reach your financial goals.
Need help creating a financial plan or managing your investments? A financial advisor can help. Find a trusted advisor today.
Create a Budget
Laying out a budget is essential for saving because it provides an accurate account of your income versus your expenses. It will help you get a better handle on your finances because it requires that you compare how much you earn to how much you spend. Reviewing bank and credit card statements can help you see where your money goes and how to change your habits.
Because financial circumstances vary, your budget should be unique to you. You can draw up your budget to fit your preferences and follow a specific savings approach. For example, you can follow the 50/30/20 rule. This strategy means spending 50% of your money on needs, 30% on wants, and saving the remaining 20%.
You can divide your goals into three categories: short-term, mid-term, and long-term. Short-term goals are achievable within a year’s time. Mid-term goals will take one to five years to accomplish, and long-term goals are more than five years from completion.
Eating at restaurants and shops can rack up your monthly food costs. While clipping coupons and taking advantage of deals can mean occasionally getting a great deal on eating out, restaurants generally cost more than a meal at home. Drinks and tips can increase your bill exponentially. Plus, you can focus on eating healthy by cooking dinner.
Another hidden food cost can be work lunches. Like going out to dinner, grabbing lunch at a restaurant or stand every day can cost you five or ten times the amount as a bag lunch. So, packing a lunch prepped the night before can save you over $100 per month.
From streaming services to monthly candle clubs, subscriptions can inflict a death of a thousand cuts on your budget. If you’re overloaded with subscriptions, cutting back to a select few can improve your ability to save.
Decrease Energy Usage
While you need to keep your refrigerator running, you can modify your overall energy usage to save money. For instance, replacing old lightbulbs with LEDs can make lighting your rooms cheaper.
Use Smart Devices
If utility bills are problematic, a smart device can help. For instance, a smart thermostat enables you to remotely set the temperature at your house. Plus, these devices can get you a discount on homeowners insurance.
Go Used Instead of New
From computers to clothes, buying used can save you thousands. You can find deals on a plethora of items at thrift stores, such as kitchen equipment and winter boots. Likewise, finding a used car online can help you get a reliable, affordable vehicle.
However, a word of caution: examining used items before purchasing them is vital. And selling items you don’t need can go a long way.
Look for Savings Deals With Banks
Financial institutions frequently offer deals for new customers. For instance, you might get a credit card with a promotional cashback bonus or a bank account that gives you $500 after several direct deposits. As a result, it pays to be on the lookout for such opportunities.
Get Rid of Debt
Debt can hamper your finances and make saving impossible. Therefore, getting rid of debt is critical to saving money when you have limited income. Use one of the following methods to tackle your debt and position yourself to save:
One way to approach debt is the snowball method, which means you prioritize the debt with the smallest balance. For example, say you have debts from three credit cards: you owe $500 on the first card, $1,000 on the second, and $1,500 on the third. Employing the snowball method means making minimum payments on the two higher balances and paying off the $500 as quickly as possible.
The avalanche method prioritizes the debt with the highest interest rate. Let’s say you have a $3,000 credit card debt with a 20% interest rate, a $2,000 personal loan with a 9% interest rate, and a $5,000 auto loan with a 6% interest rate. Since credit card debt is charging you the most interest, paying it off first will help you save money in the long run.
Dealing with numerous little debts can take excessive organization and mental energy. Consolidating your debts means you’ll have one monthly payment, simplifying your situation. Plus, consolidation can reduce your interest rate, meaning more money will attack the principal.
Look for Ways to Increase Your Income
Rent Out Unused Space
A guest room or second bedroom can be a consistent source of income. Renting out the room can provide a monthly flow of cash you can save or invest. If you live near tourist attractions, you could rent your room out to vacationers instead.
Ask for a Raise or Go Job Hunting
A raise can add to your monthly budget without you picking up a second job. Research the average salary for your position, and if you receive less than the market rate, present the information to your employer.
It never hurts to look at what’s out there and assess your options. A new job with higher pay can be your way into saving hundreds of more dollars each month.
Take Advantage of Matching Contributions
If you have a 401(k) or HSA, your employer might also provide matching funds for your contributions. For instance, your employer might match up to 4% of your paycheck when you deposit it into your account. As a result, contributing to your 401(k) can net you free money from your employer and enhance your savings.
Saving money on a low income is doable through budgeting, trimming excess spending, and boosting income. And setting financial goals can drive you to make the necessary sacrifices and put in the extra work to make your dreams a reality. Whether you’re saving for a house or next year’s Christmas presents, your income doesn’t have to prevent you from moving forward. The key to building wealth is the same no matter the size of your paycheck.
Tips on How to Save Money on Low Income
- A financial advisor can give you guidance on saving, budgeting, and investing. Finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Saving money can mean a drastic change in your financial habits – and change is hard. If you’re struggling to get started, set goals, or create a budget, here’s a straightforward guide on how to make a personal savings plan.
Photo credit: ©iStock.com/BrianAJackson, ©iStock.com/ SolStock, ©iStock.com/Khanchit Khirisutchalual