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The number of people that don’t have adequate savings may surprise you. According to CNBC, about 56% of Americans don’t have enough savings to cover a $1,000 emergency expense.
Saving money may seem daunting, especially when you’re on a low income. However, it’s possible. Sometimes the hardest part about saving money is creating the initial plan. But once you get that out of the way, it’s easier than you think.
Saving money may also sound like you’re being restricted. But putting money aside is what will allow you to be freer in the future.
I’m going to show you how you can create a plan so you can save money, even on a low income.
To save money, you’re going to want to avoid these bad habits.
How can I save money if my income is low?
Some people may think saving money is for those that have lots of money to begin with. It’s not, and it’s important to everyone who wants financial stability. As a matter of fact, the rich had to start from somewhere, and they probably didn’t get rich by spending all of their income.
The first part of saving money is creating a budget. A budget is basically a plan for your money. Creating a budget can sound difficult, but you’re basically just making a plan for the incoming and outgoing of your money.
You’ll need to keep track of two main components: income and expenses. Although tracking expenses may seem like a hassle, it’s a crucial part of a budget. You may not know how much you’re actually spending until you start tracking.
For example, did you know the average American household spends around $3,500 a year eating out? That’s just under $300 per month. Do you know how much do you spend eating out?
Now you understand the basics of saving money on a low income, let’s dive into creating a budget.
Calculate Net Monthly Income
The first thing you need to do is to calculate your net monthly income. This is the income you receive in your bank account minus fees, taxes, etc. No matter how much or how little you make, every budget starts from calculating income.
You’ll never know how much money you can spend each month without knowing how much you make.
Think about all the regular income you receive every month. This can be from the following categories:
- Salary
- Social security
- Side hustles
- Part-time job
- Child support
Only include recurring income in your calculation. If your monthly income is irregular, calculate the monthly average from about 3-6 months.
Identify and Tally Up Monthly Expenses
Next, identify and add up all your monthly expenses into two different categories.
The first category is going to be necessities. This includes:
- Rent/mortgage
- Groceries
- Transportation
- Insurance
Include anything you can’t live without.
The second category is discretionary spending. These are things that are nice to have, but you don’t necessarily need; things that are mostly for convenience and/or entertainment. Here are some things you can include:
- Gym membership
- Subscriptions
- Eating out
- Meal Kit subscriptions
- Luxury clothing/accessories
- Grooming services (nail/hair salon)
- Travel
- Concert tickets
- Other leisure activities
You can use your bank account or credit card statements to identify your spending in previous months. You can then use a separate sheet of paper or an Excel spreadsheet to tally up your spendings in the categories you’ve selected. If you’re not too familiar with Excel or don’t want to use a sheet of paper, there are tons of free money-tracking apps you can download from the app store to your smartphone.
Calculate Debt
Now, we’re going to calculate your debt. Although debt is technically an expense, we are giving this a separate category because paying it off should be a priority. Start by writing out your monthly minimum payment, because that’s the minimum you’re going to pay.
Some categories of debt are:
- Student loans
- Credit card debt
- Auto loan
Subtract Expenses From Income
By now, you should have all of your monthly income and expenses written down. Now, subtract your expenses from your income.
Income – Expenses = ?
What number do you get? Do you have some money left over? Are you negative? Or do you just break even?
If you have money left over, great! You’ve achieved your goal of saving money. You can use the leftover money to create an emergency fund or start investing in the stock market.
If you barely break even or are negative, or you want to save more money, you need to do at least one of two things: increase your income or decrease your expenses.
There’s nothing else to it and there are no secret get-rich-quick methods. It’s a matter of how much you make and how much you spend.
If you want to increase your income, check out my post on how to build wealth.
For now, let’s focus on decreasing your expenses.
Decrease Expenses
To save money on a low income, you must decrease expenses. Here are some tips on how you can achieve that.
Do it yourself
Did you know that eating out can cost up to 7 times more than cooking and eating at home? Did you also know that you can save up to $75 by doing your own oil change?
Instead of having other people do things for you, opt to do it yourself.
For example, instead of going to a restaurant and having someone cook for you, cook for yourself at home. Instead of going to the auto shop to have your oil changed, buy a kit and change it yourself in your garage.
You get the idea.
Be picky when shopping
There are tons of products that yield the same results but cost differently. For example, think of how many cleaning products you’ll come across in your typical store – literary hundreds! Look for the ones that’ll do the job for a lower price.
Another thing you can do is go generic. Generic store brands offer the same quality for so much cheaper, often around 20% cheaper than their name-brand counters.
Also, don’t buy things just because they’re on sale. Putting things on sale is just another tactic stores use to get you to spend money.
Distinguish between wants and needs
Needs are the things you can’t live without, and wants are things that are nice to have but you don’t need.
Needs are things such as food, shelter, clothes, and medical care. These are basic components of life that everyone needs access to survive.
Wants are everything else. Do you really need that Netflix subscription? Or is it just something that provides entertainment? Do you need that gym membership? Or can you work out at home? Cutting back spending on expensive hobbies is also something you may want to consider.
Everyone needs hobbies to get away from the hustle and bustle, along with some nice things that’ll improve their quality of life. But if saving money is your priority, consider cutting back on some “wants.”
Keep in mind, there are lots of free alternatives to entertainment such as outdoor activities. Read my article for 11 unique tips to save money you may have never even thought of!
Try out some new things that don’t cost as much and be open minded. You might end up liking them.
Conclusion
Saving money on a low income may seem difficult and intimidating at first, but it’s easy once you create the initial plan and set your mind to it.
All you have to do is identify your monthly income and expenses, then see where you can cut back. If you can’t cut back, you can increase your income.
Remember, saving money is key when it comes to financial stability. If you make $40,000 but save $10,000, you are richer than a person who makes $80,000 but spends it all. It’s the money that stays in your pocket that matters.
I hope this post helped. Happy saving!