Do you think saving money on a low income is practically impossible? While saving money is much simpler when you're making a lot of money, it is quite feasible to save money on a low income. In this video, I'll show you seven practical strategies to save money on a low income.
1. Lower your housing costs
2. Avoid Debt if Possible
3. Limit entertainment costs
4. Understand your wants versus your needs
5. Spend wisely on groceries
6. practice zero-sum budgeting
7. Automate your savings
1. Lower your housing costs
Whether you rent or own, the cost of your housing will be your largest monthly expense. Many financial experts recommend that the total of your rent or mortgage payments plus bills should not exceed 35 percent of your monthly after-tax income. While this expense consumes a significant portion of your monthly income, it also provides the greatest opportunity for cost savings. Reductions essentially allow you to save more money even if you have a reduced salary. For renters, there are a variety of ways to minimize your housing costs, the first of which is to find a cheaper location to live. Instead of continuing to rent a two-bedroom apartment, perhaps a single room in someone's home will suffice.
If you don't want to move, though, it may be time to look into alternative options for lowering your existing rent. Negotiating an exchange of your services, such as doing renovations for a rent reduction, or agreeing to sign a longer lease if your landlord wants tenant security are both effective strategies. When I used to rent, I traded tax advice and monthly bookkeeping services for a few hundred dollars off my rent.
Over the period of my lease, this simple exchange of goods and services saved me thousands of dollars, allowing me to save money despite working a low-wage job.
If you're a homeowner, the advice is a little different. While you probably don't want to move out to save money, even small changes like turning off the lights and reducing your water usage can add up to significant savings over time, the best way to offset your housing costs is to rent out a room. Renting out a gun room in your home can easily net you a few extra hundred dollars a month, which can help you save money on your rent.
2. Avoid Debt if Possible
If you wish to save money on a lower-than-ideal wage, you must avoid debt at all costs. This is because debt prevents you from saving in two ways.
To begin with, having that means monthly repayments. Every month, creditors will be knocking on your door for money, and if that debt could be avoided, you would have more money in your pocket at the end of the month.
Second, debt is almost always associated with monthly interest charges for lines of credit; these rates are typically around three to five percent, which means that on a ten thousand dollar balance, you'd be handing over around twenty-five to forty dollars per month. While this may seem like a small amount of money when compounded monthly, it can quickly add up when you total the dollar value of all of your debts.
When it comes to credit card debt in 2019, this problem is amplified even further. According to calm, the average interest rate on credit cards is 17%, which means that getting into debt is a costly experience. If you have a credit card balance of $6,348, at that rate, you'll be paying about $1,120.42 in interest.
3. Limit entertainment costs
4. Understand your wants versus your needs
There's no denying that spending money makes us feel good, but when you're on a low income and want to save, you need to be able to separate your wants from your needs. For example, you may want to upgrade your phone to the latest model, but you probably don't need to, or you may want a new shirt to wear out this Friday, but you probably already own plenty of good shirts when you're not making a hefty profit. I like to categorize everything that has to do with my survival as a need. In their most basic form, these are items like food, clothing, shelter, and transportation.
Set a financial goal for yourself, such as saving a thousand dollars. Once you've reached your target, you can go ahead and buy the thing you've been eyeing. This method is beneficial for two reasons.
It initially aids you in developing the habit of setting financial goals.
second, it allows you time to consider how deeply you want the item; we often buy items on impulse and end up with buyers who are more demanding.
So, if you want to save money on a low salary, you must be able to distinguish between your wants and your needs.
5. Spend wisely on groceries
6. practice zero-sum budgeting
When you practice zero-sum budgeting, you are intentionally spending every single dollar you earn, but not in the way it sounds. Instead, zero-sum budgeting entails allocating your income to each of your expense line items and directing any leftover funds to a savings or investment account. Let's say you were earning $2000 per month after taxes.
7. Automate your savings
The final step in ensuring you save money on a low income is to automate your savings. Setting up automatic savings is one of the best things I've ever done for my finances.
When I first set up this process with my work, automated deductions from my pay allowed me to deposit part of my paycheck immediately into my savings account instead of the full amount going straight into my bank account. I used to put 10% of my after-tax salary into my savings account, but over time, I was able to increase this to roughly 20% and double my monthly contributions. Now, I believe this method of saving has been so successful for two main reasons:
1. It allowed me to identify exactly how much I wanted to save; in fact, you can set your automated deduction to the amount you have allocated as monthly savings in your zero-sum budget, tying the two money-saving approaches together.
2. It allowed me to focus on other essential things, such as strengthening my abilities in order to earn more money, by removing the notion of having to save from my mind.
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