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No amount of money is too small is a common adage among saving enthusiasts. However, let’s face it, with the rising cost of living, low income can be a challenge to budget and save for the future. This does not mean that you cannot benefit from tons of savings advice available in books and the internet if you have a low income.
Individuals on low income may feel that such financial goals like home down payment and retirement plans are out of reach. Do not be discouraged; there are several creative ways to help you save money, even on a low income. Though these tactics will require you to be creative, you can save money even if you do not earn what you hoped.
The answer to working with low income is budgeting.
What Is A Budget?
A budget is an established written plan on how you want to use every dollar. While some people dread budgeting, it is the only way to financial freedom regardless of income. Budgeting is not magic; it involves understanding where your money is coming from and going.
An organized budget can help you pay off debts, save money on purchases, and make timely payments. Financial freedom requires prioritizing important things in life, and budgeting can help you achieve that goal.
Before examining how you can draft and stick with a workable budget, you should know what constitutes a budget. A budget has two major parts: income and expenses. Income is the money that comes into your accounts, such as salary, child support, alimony, social security, and profits from a business.
Expenses are straightforward as they include what you spend your money on. Some people overlook small expenditures like lunch eat-outs and gift purchases, but these accumulate into hundreds of dollars in a year.
How to Make a Budget in a Low Income
Don’t write off the idea of making a budget because you know you will have no money left at the end of the month to save. You still need to know where your money is going and make necessary corrections. Consider some steps you can follow to make a budget in a low income.
Step 1: Calculate Your Monthly Income
You should determine how much money you will receive every month, including from odd jobs and government sources. If you don’t have a regular income, you can sum up income for the past three or six months to the average as an estimate.
Step 2: Adopt the 50/30/20 Budgeting Framework
This budgeting rule works wonders for many people, even with low income. Use 50% of your income for needs (clothing, rent, food, and any other necessities of the month). Leave 30%of your monthly income for wants and commit 20% to debt repayment and savings.
To calculate your monthly expenses, you can review your bank statements for the last few months. Your expenses could include fixed and variable figures. Remember to factor in subscriptions and discretionary expenses.
Step 3: Compare Your Income with Your Expenses
This will help you know what you can change from expenditure that is not needed.
Step 4: Create a Plan
After creating a budget, you can outline your priorities and goals and take the necessary steps to improve your savings.
Step 5: Put Your Budget to Work
Sometimes your budget may indicate that your expenses exceed your income. If that is the case, you could either reduce your expenses or increase your income.
The first thing you want to do is track your expenses to help isolate and eliminate unnecessary spending. Budgeting comes in handy to help you stretch your income and spend less. However, failure to budget means you won’t know your true income and expenditure and how much you need to subsidize your income.
The first place to start is to cut down your expenditure. How can you do that? Here are a few suggestions:
Step 6: Lower Your Rent Cost
Statistics from the U.S. Bureau of Labor show that house rent is one of the biggest expenses. You could begin by examining your housing expense to see if you can save money by cutting down a few dollars every month from here. But how do you save on housing expenses?
You could downsize by moving to a smaller apartment to cut costs. You can also move to a new location with lower housing costs. If you live alone, you could cost share with a friend, albeit with inconveniences, but you will save money in the end.
Step 7: Get Choosy
If you want to lower your expenses and save on low income, you must differentiate needs and wants. For instance, you may not need that gym membership; instead, you can do free home-work outs. You may need to avoid eating at restaurants and carry your food to work. Analyze your discretionary expenses and determine what you can do without.
Step 8: Automate Your Savings Goals
Saving money when you have multiple bills staring at you is not easy. Relying on yourself to make saving decisions month after month is unrealistic. Some unexpected expenditures will crop up at the beginning of the month, and the money dedicated to savings will find new uses. That is where automated savings comes in to ensure you are not spending your intended savings.
Therefore, set up an automatic savings transfer to a safe account, and you will breathe even if the month seems unbearable, knowing that you got your savings tucked away.
Step 9: Try the Cash in an Envelope Method
Tracking expenditures can be daunting for many people. Use the cash envelope method to track expenditures if you fall under this category. This method will help you realize the magnitude of your expenditure. It could help you identify your inappropriate spending patterns.
Step 10: Find Affordable/Free Entertainment
Entertainment can also take a huge chunk of your income. The money you spend on movies or streaming music can blow out your budget and leave you with nothing to save. Instead of overspending on entertainment, you could enjoy some frugal fun without feeling sacrificed. For instance, you could enjoy matinee movies, go for a hike, practice cooking with your partner, or explore free museums.
Step 11: Eliminate Your Debt
Debts can drown your desire for financial freedom. It can usurp all the money for savings, leaving you feeling like a slave. Though it is hard to clear your debts at once, you should consciously reduce existing ones while not taking any more debts.
Tackle your debts with a vengeance using various debt repayment strategies like the snowball method, and you will be on your way to savings. Granted, it requires serious discipline, but the sacrifice will be worth it. You will not have to worry about interest rates and debt collectors.
No matter how small your income is, you can effectively budget it and save some. A lifestyle change may be needed, but the benefits outweigh the inconveniences. You will also need to formulate a budget and stick to it. Financial freedom and shaking off the shackles of poverty require a plan and discipline. Yes, you can budget even with a low income.