Do you want to learn how to save money fast on a low income? It is not only possible but also quite easy.
Saving money is never easy. Even harder, it’s when you are working with a low income. But while it might seem too challenging, this shouldn’t hinder your saving goals. Nothing should hold you back, whether you are saving for your house, education, vacation, or even retirement. Not even that meager income.
Fortunately, there are limitless ways of how to save money fast on a low income. That’s right! You have more than enough opportunities if only you could be a little bit creative.
If you thought it was impossible, the following tips will completely change your mind.
Table of Contents
Best Tips on How to Save Money Fast on a Low Income
1. Create a Budget
Having a budget that suits you is among the best steps towards responsible spending. It might seem like a lot of hassle, but it will significantly help change your spending culture and saving habits.
Without a budget, you save what is left after spending. However, with a budget, you save before you start spending. This means that your savings are planned for, not an afterthought.
Luckily, you don’t even need to be a pro in budgeting. You can take a simple free budgeting course online, and you are good to go. Also, there are numerous simple budgeting tools that can help you with that.
How to Budget Money on Low Income
No matter the level of your income, budgeting is the key to successful saving and even investing. This is because you plan your expenses, savings, and investments based on what you make every month. If you are just starting on budgeting, you can try out the famous 50/30/20 budgeting rule.
The rule suggests that you allocate 50% of your income to necessities/needs, 30% to wants, and around 20% to savings and repayment of debts.
Necessities include things like housing, food, transport, basic utilities, minimum loan payments, insurance, etc. Wants, on the other hand, include things like entertainment, gym memberships, holidays, etc.
How to Budget with Irregular Income
Sometimes, your income is not only low but also irregular. Now, how do you budget with a fluctuating income? These simple tips make it easy for you:
- Establish your average monthly income and expenses: You can do this by calculating your total income and expenses for six months and dividing it by six.
- Use a zero-sum budget: This includes categorizing your saving goals as part of your expenses. This way, your income and expenses are even at the end of the month. When you have more money, you stack it somewhere. When income is less, you use this extra money to fill the gap.
- Separate spending and saving money: Unlike in the zero-sum method, here you physically separate your expenses from your savings. This means that even when you are short on expenses money, you cannot use your savings.
- Emergency fund: An emergency fund is the best way to survive during low-income seasons. You should have enough money to cover for at least three months of your total expenses, stashed somewhere.
How to Create a Flexible Budget
To increase your savings, you should not only learn how to create but also how to calculate a flexible budget. A flexible budget enables you to adjust both your spending and savings according to the actual life happenings.
When creating a flexible budget, you need to:
- Create categories: For instance, shopping, entertainment, Daily expenses, etc.
- Organize by Necessity: Identify things in these categories that you can do without and those that you can’t. For example, electricity, internet, and heating. Those that you can forego include entertainment, gym membership, etc.
- Prioritize: Even with these categories, some spending will be important during some months than in others. For instance, heating is a priority during winter than it is in summer. So, know what is important in a particular month.
For the best budgeting tools, you can try out Mint, YNAB, or Quicken.
See related: How to Use Personal Capital Like a Pro [Tutorial]
2. Slash Your Expenses
Besides budgeting, reducing your expenses is another effective way of increasing your savings capacity. But, this is easier said than done. Try out these tips if you want to reduce your expenses.
Track Your Spending
Do you know exactly what expense eats up what amount of your income? If not, tracking your spending can be the best way to reduce your expenses and increase your savings.
The truth is you might be spending a lot of money on unnecessary items, subscriptions, or memberships. For this reason, list down all your expenses, categorize them into needs or wants, and decide whether what you’ve been spending on them is worth it.
After this, you can decide what needs to be adjusted and what doesn’t.
Lower Your Housing Costs
Housing costs take a substantial amount of your income. In fact, various studies show that most people with an annual income of less than $50,000 spend around 36.6% of their income on housing.
However, financial experts recommend that one should only spend up to 28% of their income, before tax, on housing. For this reason, you should learn how to save money on rent and other housing expenses and channel this money to savings.
For renters, you can reduce your housing costs through simple actions like getting a roommate, move to a cheaper house, avoiding paid parking spaces, etc. For homeowners, you can do away with private mortgage insurance, sell the house and rent a cheap apartment, rent part of your home, etc.
Consolidate Your Debt for Lower Interest Rates
Consolidating your debts is another incredible way of how to save money fast on a low income. This option allows you to combine all your debts into a single monthly payment. This way, you can reduce the monthly interest rate and still be able to repay the debt.
In addition, you get to clear the debts faster.
3. Adopt Better Spending Habits
Changing some of your bad spending habits can significantly increase the money available for savings.
Some of the good spending habits you can adopt, include:
Understand and Avoid Certain Spending Triggers
Sometimes, learning how to save money fast on a low income is all about how you spend it. And, emotional and physiological spending triggers play a significant role in this.
What makes you want to spend?
If you understand what triggers your spending and avoid it, you can easily hit your savings even on that low income. Some of these triggers include peer pressure, mood, environment, etc.
Substitute Credit Cards with Cash
Instead of using a credit card for every transaction, you can try using cash more frequently. This way, you can avoid the interests and the temptation of overspending.
But, if you can’t avoid credit cards, at least choose ones with favorable terms and interest rates.
Set Specific Financial Goals (Short and Long-term)
Without financial goals, you can spend every last dime without worrying. However, financial goals will restrain you from spending your money unnecessarily as you try to accomplish the set goals.
As pointed earlier, budgeting ensures that every dollar is accounted for, and nothing is wasted. Also, it prevents you from making spontaneous spending decisions.
4. Avoid Common Financial Mistakes
Some simple and avoidable financial mistakes can make saving quite difficult. And, if you want to understand how to save money fast on a low income, here are some mistakes you should avoid.
Excessive or Unnecessary Spending
While some spending seems normal, it might be costing you a lot of money – money that you could use to offset another more important expense or bill. For instance, a mere $30 a week dinner adds up to around $1,560 annually. If your income isn’t that high, why not use this money for another expense like auto or credit card payment?
Also, if you are into fashion, you should learn how to look expensive on a budget. This way, you can avoid using too much money on fashion, while you can still look luxurious without overspending.
Too Many Recurring Payments
Do you need that expensive gym membership? Or even that cable TV? If you have too many payments to make every month, you might be left with nothing to save. Therefore, ensure that these payments are as necessary as they can get.
Paying for Essentials with Credit
While this has become the norm, financial advisors advise against it. Using your credit card to pay for your groceries, gasoline, and other essentials dents your finances. The reason being, every purchase you make is subjected to some interest rate, increasing the cost of that item.
If you can, avoid it. Also, try joining cashback apps like Ibotta to ensure you receive the best prices for products and cashback.
5. Investing while Saving
Besides cutting expenses and budgeting, there is a better way of how to save money fast on a low income. Combining saving and investing! That’s right.
There are various saving tools and platforms that allow you to invest and save at the same time. These include:
Online Saving Accounts
With saving accounts, you earn interest for not using your money. Some high-yield saving accounts offer interests that enable you to grow your income. You can check out saving accounts from CIT Bank or Discover. They offer attractive interest rates.
Money Market Accounts
These are similar to saving accounts allowing you to earn interest on your money. Money market accounts pay higher interest rates, although not always. Check out CIT Bank or Discover for the best opportunities.
Instead of saving accounts, which can only offer a certain amount of interest, Robo-advisors help you invest even when you don’t know how to. Use platforms like Personal Capital, Wealthfront, or Betterment to automate your investing.
For instance, Acorns requires you just to include your debit or credit card on the app. From here, every purchase you make is rounded up to the next whole figure. The difference is invested in low-cost ETFs.
You can also decide to make regular deposits, which will be invested.
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