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Trying to save money on a low income may sound like an oxymoron. When you’re struggling to get by, trying to ramp up your savings may seem impossible.
But life is happening now. And whatever you want to do in life can’t wait for “someday”.
Someday is now.
So whatever you want to save for – travel, retirement, start a side business, make a life change, buy a home – we’ll lay out a plan that’ll help you move from paycheck to paycheck to saving money.
Leo Tzu said, “A journey of 1000 miles begins with one step.” And it couldn’t be more true about saving money.
It doesn’t matter that you don’t have hundreds of dollars to save each month. Like any other improvement in life, it’s not the big flashy wins that move the needle the most. It’s the small, 1% improvements, that over time, make an exponentially more significant difference.
Just by getting started, however small, you’re developing the mindset of a saver. The increases will come, but by setting up a few simple ways to save, you’re immediately improving the trajectory of your long-term finances.
To start saving money on a low income, we’ll outline some basic steps that’ll help in any situation:
- Know where you’re starting from.
- Getting clear on your priorities.
- Devising a strategy.
- Putting yourself in a position to save.
Then we’ll go over some tips that’ll help you to master each one.
To save money on a low income, first know where you're starting from
Imagine you’re taking a long road trip. You wouldn’t just grab your jacket and jump in the car, right?
You’d probably check your GPS and see how long the trip will take. Or how much gas you’ll need and when you’ll get there. Maybe even where you’ll stop for lunch.
So to save money, especially on a low income, it’s best to know where you’re starting from.
Budgets have a bad reputation. They’re hard to create, hard to maintain, they limit your life… and this may be why most people don’t use one.
But they’re really not. In fact, the hardest thing about budgets, is that they’ll tell us things we might not want to hear.
Frank Sonnenberg said, “Truth is not what it seems, but what it is.”
Getting it down on paper will show where your money leaks are, and give you heads up on where to focus first for the quickest impact.
And just as important, keeping a budget will give you an apples to apples comparison from month to month. Seeing your progress can be really motivating.
A budget will help you to get more – not less out of life.
Decide on Your Priorities
You’ve got a budget now, so you know where you’re starting from. Now the question is… where are you headed? If you’re trying to save money on a low income, or any income for that matter, it’s much easier when you have a why, or a purpose.
What do you want to happen in your life over the next year or two, that money will help?
One reason it can be hard to adopt and maintain a budget is that we become accustomed to our lifestyle. And when a budget shows that we need to cut back, we balk. We don’t want to give up our subscriptions, our gym membership, or our car payment. We want to keep it all.
Having one over-arching goal will make it easier to prioritize expenses. If your goal for the next couple years is to afford a new home, or finish school, then suddenly that expensive restaurant, or those extra cable channels start to lose their appeal.
What’s your goal? What do you want to happen in the next two years?
Paying off debt will shift you into high gear
Debt is an easy trap to fall into, especially if your income is low. And places like furniture stores and car dealers are all too happy to set that trap.
They’ll bend over backwards to make your monthly payment as cheap as possible, but you’ll pay for that furniture or new car for the next six years.
And it’s not just the money spent on those bills. It’s what you can’t do while you’re paying for it.
Long, drawn-out debt payments make it tough to set aside cash for emergencies, or even have a little fun on the weekend. Not to mention losing valuable time when you could be saving for retirement.
So even though saving money is our ultimate goal, eliminating debt first will create a lot of room to do that.
Check out How to Get Out of Debt – and Stay That Way. It shows how to setup your own debt snowball or debt avalanche. These are simple methods to help you eliminate debt as quickly as possible.
Saving money on a low income is easier when you're protected from emergencies
The idea of building an emergency fund might seem impossible when you’re struggling to put gas in the car and food on the table. But that scarcity mindset is one of the main paycheck to paycheck traps.
When you always prioritize the urgent stuff like this weeks bills, and assume you’ll build an emergency fund after your next raise, or after you pay off the car, chances are good that that day will never come.
There’s always gonna be something you need to pay off immediately – like a car repair. And if you don’t have the cash, you’ll always be in debt.
So if your goal is to save money, then one of the first things that’ll put you in a position to save, is to protect yourself from emergencies. It may take a few months, but whatever you can do to get $1000 into a separate account will be a huge step closer to having cash leftover to save and invest.
Whether you need to sell things, make some lifestyle adjustments or work overtime, getting that initial $1000 into an emergency fund will be a big win.
Here’s how we setup our emergency fund in under 10 minutes.
Related topics that could help to build your fund:
When you're clear about your wants, spending decisions are easier
This is the part we all dread, right? Money saving tips usually means cutting expenses and deciding what we can’t do in life.
Setting priorities with your income is just accepting that you have dozens of choices, but if you have a plan for the next couple years, then only some of those are right for you.
Saving money is about eliminating the choices that don’t align with your personal plan for the next couple years.
So if you’ve done steps 1 and 2, you know:
- Exactly how much you have to spend each month,
- Your one or two most important goals for the next couple years that’ll require money to achieve.
Now, it’s a matter of going through your budget and weighing each category against your goal with this criteria:
- Is this helping me to get there?
- What if I eliminate it?
- How can I do this for less money?
There’s not a lot we absolutely need. Food, shelter, transportation, insurance. But everything else is on the table. And even those four can probably be done cheaper.
Saving money on a low budget becomes much easier when you know exactly what you have to spend, and you’ve established your priorities.
10 Ways to save money on a low income that'll have the biggest impact
1. Meal Planning Has an Immediate Impact
Food costs are surprisingly one of the top two or three monthly expenses for most people. It tends to slip through the cracks because we buy food in so many ways. Groceries, work lunches, restaurants, take-out, convenience stores.
Planning your meals for a week isn’t hard. And if you can go to the store once and come home with all the food you’ll need for every meal and snack for an entire week, it’s common to save several hundred dollars a month.
2. Cancel Subscriptions That Drain Your Budget
It’s impossible to buy clothes in a mall without being asked for your email address. And those “flash sale” emails you receive every day are like walking past a plate of warm chocolate chip cookies.
Seeing, “save 40% only until tomorrow” is really hard to pass up.
But if you’re buying more than you need throughout the year, you’re spending more of your budget, not less. Even with discounts.
Chocolate chip cookies will still be around after we lose that 15 pounds. And so will those sales. So for now, unsubscribe and remove the temptation.
3. Watch TV Without Paying for Cable
Cable TV today, is like Blockbuster Video when Netflix came along. Who’d want to drive to a store to rent a movie when you were able to do it from your couch?
Cable was a novelty when it became commonplace in the 1980’s. But there are much cheaper options available now.
You don’t need to pay an inflated price for dozens of channels you’ll never watch, and be nickel and dimed with never-ending rental fees for remotes and cable boxes.
We saved over $1000 a year by canceling cable and watch literally the same shows. Here are 20 Ways to Watch TV Without Cable.
4. Reduce Insurance Costs
If you’ve had your auto or homeowner’s insurance for several years, check around. Just like cable TV, there are more options available that weren’t around a decade ago.
Features like paying according to how much you actually drive are getting more popular because more people now work from home.
Most people hesitate to do this because it always meant handing over your phone number, then fielding phone calls for the next week. Not anymore. Now you can do it all online without answering a single sales call
In fact, I just got several quotes this week for home and auto insurance. I’ll be switching next week, and saving $500 a year on homeowner’s, and almost $700 per year on our auto policy – for the same level of coverage.
To simplify this, just grab the declaration page for your current policy. It shows all your coverages and how much you’re paying for them. If it’s not handy, log in to your account and download it.
Now go to a site like Policy Genius (not an affiliate link) where you can enter the coverage you’re looking for, and within about 24 hours they’ll send you quotes from about three companies, free of charge.
Now you can make an apples to apples comparison, and if you’ve been with the same company for several years, chances are you can save money.
5. Save Money Fast by Eliminating Car Payments
Self-made millionaire and author David Bach says, “buying a new car is the single worst financial decision you can make.”
A new car is one of the fastest depreciating assets you can possibly buy, and to top it off, most cars sit unused 95% of the time.
The average car payment is around $450-$475 per month. If you suddenly had that to work with, you’d see your net worth rise each month.
Here’s an alternative from Dave Ramsey that’ll enable you to save money rather than throw it at a car payment for 5 years:
- Save about $2000 and pay cash for a car. Don’t worry though, it’s temporary.
- Instead of paying that $450 a month to a car loan, deposit it into a savings account for 10 months. We’ve used CIT Bank’s Savings Builder account, because it pays about 11x the interest rate of local banks.
- Now, sell your $2000 car and combine the proceeds with your $4500 to get something decent in the $6000 range.
- Now you have a car that’ll last awhile, with no car payment.
And if you keep saving that $450-$475 each month, you’ll set yourself up with a nice emergency fund, a car fund, pay off debt, and then start accumulating savings.
6. Consider Downsizing Your Mortgage
A roof over our head is a necessity, but the square footage of our home isn’t what we’ll be most proud of later in life. It’s the stuff we did, built, improved, or the people around us that’ll mean the most.
So if your goal for the next few years is to launch a business, eliminate debt, or ramp up your savings, but 40% or more of your budget goes to your mortgage, it could be worth downsizing.
It’s a tough choice to make, but sometimes taking a temporary step back makes it possible to make permanent steps forward.
7. Use Automation to Your Advantage
We’ve all heard the expression, “pay yourself first”. It’s a powerful concept, but not many people actually do it.
Warren Buffett does. In fact one of his well-known quotes is, “Don’t save what is left after spending. Spend what is left after saving.”
When you write your budget, your first “expense” should be to automatically deposit money in savings.
Automating this process is powerful for two reasons:
- Making regular deposits over a long period is the most common way people become millionaires. Albert Einstein called compound interest, “the eighth wonder of the world.”
- When you pay yourself first with every paycheck, the burden of choice – in part – is lifted off your shoulders. If you’re depositing $200 from every paycheck, maybe now you know you can’t afford that new car payment. So you drive your slightly dented model, but you save money and watch your net worth increase each month.
Here are two ways to pay yourself first:
1. If your employer offers a 401k with a company match, absolutely contribute at least enough to get their full match.
2. Automate deposits into an emergency fund – separate from your checking account. This is a key to making your budget work. Because paying for emergencies from the same account as your scheduled bills makes it impossible to have a predictable budget.
Here’s how we automated our emergency fund in under ten minutes. Since then, we haven’t paid for a single emergency from our checking account.
8. Give Yourself an Allowance - in Cash
I know we’re trying to save money on a low budget, but let’s face it. We all spend a few bucks every week. When you use a debit card for $5 here, $9 there, it’s easy to lose track of how much is slipping through your fingers each month.
When you have to fork over cash, there’s more of an emotional involvement. You know exactly what you have left, and you’ll be more inclined to think of alternatives.
Since bills are fairly predictable, they can be paid and tracked electronically. But giving yourself an allowance in cash motivates you to spend it more carefully.
9. Bring in More Money
Saving money implies passive behavior – doing without, or cutting back. But if you’re trying to save on a low income, why not create more income – but on your terms.
- Have any furniture you’re no longer using? Try listing it on Craigslist or Facebook Marketplace.
- The same goes for exercise equipment, large tools, athletic equipment, laptops or phones.
- Walking dogs or cleaning homes can bring in $25-$50 an hour, and can be started literally this weekend.
10. Consider your lifestyle
According to James Clear, author of Atomic Habits, environment plays a big factor in your ability to develop habits that’ll improve your life.
What do your weekends look like?
- Do you frequently do things that aren’t conducive to saving money? Dinner and drinks out is nice now and then, but a cheaper alternative could help to build an emergency fund within a few months.
- Who do you spend time with? Are they on board with your choice to try and spend more intentionally?
- There are loads of things to do without going near a shopping mall. In fact this past Christmas was one of the first I can remember, when I didn’t set foot in a mall.
We all experience periods of living close to the edge. Hopefully yours is temporary. But even on a lower income, the tactics here will help you to make the most of what you have.
Knowing exactly what’s coming in and where it’s going is essential, whether you’re 20 or 60. Budgeting isn’t hard. In fact, the hardest part about it, is that it lays out choices and forces us to make decisions.
We all have a certain amount to spend, and as David Allen said, “you can do anything, but not everything.”
The money saving tips here are focused mostly on the short-term, and are meant to save money immediately. They’ll help to create some breathing room in your budget so you can pay down debt, start building an emergency fund, or just create a better cash flow each month.
But the real goal is to develop a simple system that works for you. To develop the habits that’ll make you instinctively question every expense.
- Is this a good choice for me now, given what my goal is for the next couple years?
- How much does this cost over the course of a year?
- How can I get the same value for less money?
- Is my net worth increasing or decreasing each month?
Here’s a challenge for you:
Do you think you could save $10,000 in the next year? It’s more within reach than it might seem! Check out How to Save $10,000 in a Year to see how you can do it.
How about you?
Have you been in a jam, and been forced to come up with any unique ways to save money that worked well?