Living on a low income can be tough, especially when you find yourself living paycheck to paycheck. With bills to pay and basic necessities to cover, the thought of having money left over at the end of the month may seem like a pipe dream. So, saving money? Forget about it.
But what if I told you that by sticking to a budgeting method, you could start saving money even on a low income?
Keep reading to discover 10 low-income-friendly budgeting methods to reach your saving goals, even when money is tight.
Is It Possible to Save Living on a Low Income?
Are you living on a tight budget and wondering if it’s even possible to save money? The answer is a resounding YES!
While it may seem daunting at first, saving money on a low income is totally doable. The key is to set actionable goals for yourself and have systems in place to help you achieve them.
Instead of setting vague and obscure goals like “I want to start saving,” set concrete goals that you can measure and track. For example, “I want to save $50 this month.” Then, take this goal a step further. Why do you want to save $50 this month? Do you want to build up an emergency fund? Maybe you’re saving up to put you or your children through college. By having a clear target to work towards, you’ll be more motivated to save money.
Creating systems to support your savings goals is equally important. You could set up automatic transfers from your checking account to your savings account or round up every purchase you make and save it. Finding the right method to support your goals will make saving money effortless.
The bottom line is, with some effort and commitment, you can absolutely find ways to save money even on a low income.
How Much Money Should You Be Saving on a Low Income?
Determining how much money to save on a low income will depend on your income, expenses, and financial goals. Generally speaking, experts recommend saving at least 10% to 20% of your income, but this may not be feasible for everyone.
When I was living on $2000 a month, I was able to save $250 a month by carefully following a budget. But it wasn’t easy. I had to take some pretty extreme measures — like biking instead of driving and living with 3 roommates.
Below is the exact breakdown of my $2000 a month budget:
- Rent: $850
- Groceries:$250
- Cellphone: $60
- Electricity/Water/Gas:$250
- Health Care:$31
- Public Transportation: $100
- Entertainment:$209
Total Expenses: $1750
Savings: $250
As you can see, my savings strategy was to simply save a set dollar amount every month — which was 12.5% of my monthly earnings. For most people, saving a percentage of their earnings and saving a fixed amount will equate to the same amount of money each month. However, if you don’t have a steady income, these numbers will differ month to month. Click here for 10 frugal tips to help you live on $2000 a month.
You may be thinking, how did you do it? How did you stay motivated to save every month? Well, what kept me motivated was having a clear goal in mind.
5 Low Income Saving Goals
When I was saving $250 a month while living on a low income, I found that having a concrete goal helped me stay motivated. My goal was to pay off my student debt before it started accumulating interest, which meant saving $6,000 in just two years. It was tough, but by breaking it down into a monthly savings goal, I was able to stay on track.
If you’re looking for inspiration for your own savings goals, here are five ideas to consider:
1. Emergency Fund
Let’s face it, life is unpredictable. Emergencies can happen at any time, and they often come with a hefty price tag. That’s why having an emergency fund is a smart financial goal to have.
An emergency fund is essentially a pool of money that you set aside specifically for unexpected events, like sudden job loss, a medical emergency, or a car accident. By having this cushion of funds, you can avoid dipping into your savings or going into debt to cover these unexpected expenses. The general rule of thumb is to aim for three to six months’ worth of living expenses in your emergency fund, but even having a small amount saved up can help in a pinch.
The peace of mind that having an emergency fund can bring is priceless. Instead of worrying about how you’ll pay for an unexpected car repair or medical bill, you can rest easy knowing that you have money set aside specifically for emergencies.
2. Retirement
Retirement might seem far off in the distance, but it’s never too early to start planning for your golden years. In fact, saving for retirement is one of the best financial goals you can have.
For starters, Social Security benefits are not enough to live on during retirement. In fact, according to the Social Security Administration, the average monthly retirement benefit in February of 2023 was only $1,830.66. That’s not a lot of money to support you, especially if you want to enjoy your retirement years to the fullest. This means that it’s up to you to make sure you have enough saved to live comfortably. By saving for retirement now, you are investing in your future self.
Another reason why saving for retirement is important is the power of compound interest. The earlier you start saving, the more time your money has to grow. Plus, with the magic of compound interest, your money can grow exponentially over time. This means that even small contributions made early on can have a big impact on your retirement savings in the long run. Does this sound too good to be true? Plug your savings into this online compound interest calculator to see just how much your money can grow over time!
3. Debt Repayment
Whether you’re dealing with credit card debt or student loan debt, it can feel like a constant weight on your shoulders. But the good news is that by making debt repayment your financial goal, you can take control of your finances and work towards a brighter future.
Focus on paying off your high interest debt first, then start chipping away at the rest. The sooner you pay it off, the less you’ll be spending in the long run. Plus, by paying off your debts, you can free up more money in your budget for other things, like saving for emergencies or retirement.
But the benefits of debt repayment go beyond just financial freedom – it can also help you feel more confident and empowered in other areas of your life. When you take control of your finances and start making progress towards your debt repayment, you may find that you have more energy and focus to pursue other goals and dreams. Maybe you’ll have the drive to start that business you’ve always dreamed of. Or maybe you’ll have the energy to be a more present parent for your children.
4. Big Purchases
Big purchases like a house or a car can be a major financial undertaking. That’s why it’s a good idea to save for these purchases in advance. By setting aside money each month, you can make these big purchases more manageable and less stressful. Plus, you may be able to get better terms and rates when it comes time to actually make the purchase.
For example, if you’re planning to buy a house, saving up for a down payment may help you secure a better interest rate on your mortgage, which can save you thousands over the life of your loan. Or, if you have a larger down payment for a car, you may be able to negotiate a better price with the dealership. This will lower your monthly payments! By making saving for big purchases, you can avoid taking on more debt than you can afford.
So whether you’re in the market for a new house, car, or another big-ticket item, remember that by saving up in advance, you can avoid excess debt and feel more empowered. Start setting aside some money each month, and before you know it, you’ll be well on your way to making your dream purchase a reality!
5. Education
By saving for education, you’re investing in yourself or your loved one’s future earning potential.
Education is a powerful tool that can unlock doors and opportunities you may not have even imagined. And the statistics don’t lie – according to a study by the U.S. Department of Education, people with a bachelor’s degree can earn up to 63% more than those with only a high school diploma over their lifetime. That’s a big difference!
Plus, the benefits of investing in your education go beyond just earning potential. Going to college can help you make valuable connections, broaden your horizons, and help you develop valuable skills that can benefit you in all areas of your life. By investing in education, you’re also investing in personal growth and development.
So, what’s your savings goal? Keep it in mind as we walk through the 10 most effective methods for saving money on a low income!
10 Low Income Budgeting Methods
Saving money can be a challenge, especially when you’re living on a low income. But with the right mindset and some smart strategies, it’s possible to achieve your financial goals and build a better future for yourself and your family.
1. Save a Percentage of Your Income
Saving a percentage of your income is a simple and effective method for saving money on a low income. It’s a great way to ensure that you’re consistently putting money away for the future, even when unexpected expenses pop up.
The great thing about saving a percentage of your income is that it’s customizable to your individual circ*mstances. You can choose to save 5%, 10%, or even 20% of your income, depending on your financial goals and your current budget. The key is to be consistent and make saving a priority.
2. Use the 50/30/20 Rule
The 50/30/20 rule is a budgeting method that can help you manage your finances in a simple and effective way. The rule is simple: allocate 50% of your income to necessities, 30% to wants, and 20% to savings. This rule can be a great way to prioritize your spending and help you save money in the long run.
By taking care of your basic needs first, such as rent, utilities, and groceries, you can avoid unnecessary stress. The 30% allocated to wants, such as entertainment or dining out, allows for some fun and spontaneity in your budget. However, it’s important to be mindful of your spending and not let it get out of control.
The remaining 20% is dedicated to savings and debt repayment. This can be a great way to build an emergency fund, pay off debt, or save for big purchases.
In short, the 50/30/20 the rule can be an effective method for saving money because it helps you prioritize your spending and ensure that you are taking care of both your current needs and future financial goals.
I created a FREE 50/30/20 budget template! Click here to download it.
3. Save a Fixed Amount
Saving a fixed amount each month is an effective method for those who want consistency and stability in their savings plan. This approach is especially helpful for people whose income fluctuates, like those who rely on tips or freelance. By putting away a set amount each month, you can build a solid foundation for your financial future.
While there may be months where you have to cut back on expenses to meet your savings goal, there will also be months where you can treat yourself a little more because you earned more. The key is to stick to your fixed savings amount, even if it means making some sacrifices along the way.
4. Round up Your Expenses
If you’re someone who wants to save money but struggles with sticking to a budget, try rounding up your expenses instead!
Rounding up your expenses is a savings method where you round up the amount of each transaction you make to the nearest whole number. Then, you transfer the difference into a savings account. For example, if you spend $3.75 on a coffee, you would round up to $4.00 and save the extra $0.25.
Over time, this extra change can really add up to help you build up your savings. This method is often used in combination with other savings strategies as a way to save a little extra money without even thinking about it. It’s like tricking yourself into saving. And the best part? You won’t even feel the impact on your daily spending habits!
Downloading a round-up app can automate the process for you. These apps link to your bank account and round up your transactions automatically. My favorite is Chime, but there are plenty of others out there!
So, next time you’re at the store and your total comes to $8.47, why not round it up to $9 and save the extra $0.53? Your future self will thank you!
5. Cash Envelope System
Are you tired of constantly overspending on your monthly budget? The cash envelope system may be the answer to your financial woes.
It’s simple. Separate cash into different envelopes for different expenses, such as groceries, entertainment, and transportation. Once the money in an envelope is gone, you cannot spend any more in that category for the month. By physically separating your money into different envelopes, you’ll have a clear picture of how much you have left to spend in each category. This visual reminder will help you stick to your budget and avoid overspending. Plus, since you’ll only have a finite amount of cash to work with, you’ll be forced to make more intentional choices about how you spend your money.
If you’re worried about losing track of your cash, don’t worry! There are plenty of apps available that can help you keep track of your envelope system digitally — Goodbudget is my personal favorite. However, if you prefer to go old-school, you can label and decorate your envelopes to make the process more personalized. How fun is that?!
6. Try the 52-Week Money Challenge
The 52-week money challenge is a great way to start saving money by challenging yourself to save a little more each week.
The point of the challenge is to gradually increase the amount of money saved each week for a year. In week one, the goal is to save $1. In week two, the goal is to save $2, and so on, until the final week of the challenge where the goal is to save $52. By the end of the 52-week challenge, a total of $1,378 will have been saved.
This challenge can help you build a savings habit in a manageable and sustainable way. By starting with a small amount in week one and gradually increasing your savings each week, you’ll get used to the idea of putting money aside regularly. This can make it easier to continue saving money even after you’ve completed the 52-week challenge! It’s a fun and manageable way to help you build discipline and consistency.
7. Automate Your Saving
The beauty of automating your saving is that it takes the effort out of it. You won’t have to remember to manually transfer money each month. Instead, the transfer happens automatically, like clockwork.
With most employers, you can set your direct deposit to automatically deposit your paycheck into multiple accounts. Decide how much you want to save each month, and have that sum automatically deposit into your savings account. By doing so, you’ll forget that you even had that money to begin with.
8. Use the Snowball Method
If you’re looking for a simple and effective way to tackle your debts on a low income, the Snowball Method might be just what you need. This method involves paying off your smallest debts first, and then moving on to the larger ones. The idea is to build momentum as you pay off each debt, so that you feel motivated to keep going.
Here’s how the Snowball Method works: First, make a list of all your debts, from smallest to largest. Then, focus on paying off the smallest debt first, while making minimum payments on all your other debts. Once the smallest debt is paid off, take the money you were using to pay that debt and put it towards the next smallest debt on your list. As you pay off each debt, you’ll free up more money to put towards the next one, which will make the process easier over time. Keep going until all your debts are paid off.
Need some inspiration? Learn how Renee from The Fun Sized Life paid of $6000 off debt in just 6 months with the Snowball Method!
9. Try the Avalanche Method
If you’re looking for a different approach to tackling your debts, the avalanche method might be a better option for you! Instead of starting with your smallest debts like the Snowball Method, the Avalanche Method prioritizes paying off your high-interest debts first, then moving on to your lower interest debts.
Let me explain — for a moment, picture yourself skiing down a mountain. You start at the top where the snow is soft and fresh, and gradually work your way down to the bottom where the snow is hard and more compact.
The Avalanche Method is like skiing down a mountain. You start by tackling your highest interest debts, which are costing you the most in interest charges, and work your way down to your lower interest debts. By doing so, you’ll save a lot of money in interest charges over time. Plus, you’ll be able to reduce the amount of interest you’re paying each month, which means more money in your pocket!
You may be thinking, is the Avalanche Method or the Snowball Method right for me? Click here to find out!
10. Follow the 30-Day Rule
Now I have to break it to you, no savings method will help you escape this truth — at its core, saving money is really about not spending as much. If you spend your entire paycheck, you simply won’t have anything left over at the end of the month to put into savings.
In order to save on a low income, or any income really, you’ll need to take control of your shopping habits. If you struggle with making impulse purchases, the 30 day rule can help!
The idea behind the 30 day rule is to wait 30 days before making a non-essential purchase. This gives you time to truly think about whether you need the item in question. After 30 days, if you still want the item, then go ahead and make the purchase. But if you’ve forgotten about it, then you’ve just successfully saved yourself some money!
Looking for more inspiration to help you stop buying so much stuff? I’ve written countless articles about minimalism and living with less. Check out the ones below!
- Minimalist Living: 25 Essential Tips for Living With Less
- Finding Your Minimalist Essentials
- Stop Shopping for Your Fantasy Self
In Conclusion
Don’t let a low income stop you from achieving your financial goals. By implementing these 10 money-saving methods, you can start taking control of your finances, no matter how tight your budget may be.
From implementing the 50/30/20 rule to rounding up your expenses, these low income budgeting methods can help you establish simple and effective systems for saving money.
So why not give them a try? After all, saving money isn’t just about how much you make – it’s about how you choose to spend it!
