According to the Census Bureau, the poverty threshold for a single-person household is $15,490 per year. Yet 15% of Americans live in households that earn below this level, translating to around 50 million low-income Americans. The Bureau of Labor Statistics has also revealed that individuals aged 16 to 24 have the lowest median weekly earnings, ranging from $700 to $760.
If you are a low-income earner, don’t worry–here are seven ways to save money fast on a low income:
1. Create a Budget
Understanding your financial landscape is crucial; without a clear picture of your income and expenses, saving becomes a guessing game. Learning how to budget your money on low income will help you determine how much you have available for savings after covering your essential expenses.
Start by listing major expenses such as rent, groceries, utilities, transportation, and loans. Don’t forget to allocate funds for essential categories like household needs, clothing, and entertainment, and create a buffer for your emergency fund. Analyze your credit card and bank statements to gauge your average spending, then jot down every monthly expense to stay on top of your financial game and rein in overspending in specific categories.
Pro Tip: One of the simplest ways to budget your money is to follow the 50/30/20 budget rule. This rule requires you to balance your money into three categories: 50% for your needs, 30% for your wants, and 20% for your savings.
2. Open a Savings Account
Having a savings account is crucial for any savings plan, especially if you’re on a limited income. Keep it separate from your checking account to resist the temptation of taking money from it for unplanned expenses. You can also link your checking and savings accounts for automatic transfers, ensuring a set amount moves from checking to savings on your chosen schedule. Consider these types of savings accounts:
- Emergency Savings Fund: Ideally covers three to six months of living expenses and is strictly used for unforeseen expenses or emergencies, such as job loss, medical emergencies, or unexpected bills. A solid emergency fund provides peace of mind and can help avoid a financial crisis in an emergency.
- High-Interest Savings Account: This type of account earns a higher interest rate than a standard account, allowing for more significant savings over time. The interest earned on the account can be compounded, meaning interest earned is added to the principal, generating even more interest.
- Retirement Savings Account: This account offers tax benefits while saving for your future retirement. It is recommended that you contribute to a 401k or individual retirement account (IRA), with the savings invested for long-term growth. These accounts allow for tax-deferred growth, so you don’t have to pay taxes on the money until you withdraw it during retirement.
3. Cancel Unnecessary Subscriptions
After laying out your budget and identifying where to place your savings, it’s time to find areas to cut expenses. Take a closer look at subscription services like Netflix, Audible, Paramount Plus, or Curology. If you’re not utilizing them as much as expected, consider canceling these subscriptions. You don’t need to cancel them all at once; you can focus on one subscription at a time to maximize their value.
Furthermore, streamline your monthly subscription bills by using tools like Cushion.ai. This app provides a convenient calendar view of automatic subscription charges and Buy Now, Pay Later (BNPL) payments, making it easy to assess and cut unnecessary monthly expenses. Receive automatic updates about your bills in your Google Calendar and avoid unwanted renewal subscription charges.
4. Prioritize Paying Off Debts
Debt is one of the major roadblocks to saving money. If you have debts, especially high-interest credit card debts, student loans, or medical debts, it can hinder your path toward financial freedom. Therefore, creating a debt repayment plan and using strategic approaches to pay off your debts faster is essential. Some of these tactics include:
- Snowball method: Start by paying the smallest debt first and then move to the next. This method can help build momentum and boost your confidence as you progress in paying off your debts.
- Avalanche method: Prioritize paying off debt with the highest interest rate first. This can save you money in the long run and reduce the total interest you pay.
- Pay more than the minimum: Paying more than the minimum amount each month will save you interest and help you pay off your debt faster. Make sure to check your loan terms for prepayment penalties or additional fees.
- Pay more than once a month: Pay your credit card bills multiple times monthly to keep track of your balance and lower your credit utilization ratio. Credit experts advise maintaining your credit utilization ratio at or below 30%. This ratio is important for calculating your credit score.
Enlisting a debt repayment plan is key to maintaining focus and motivation on your journey to achieving your personal finance goals. Establishing a timeline and concentrating on one debt at a time allows you to stay on course efficiently and swiftly work towards eliminating your debts.
5. Save on Food Expenses
Food is one of the top three expenses for Americans, trailing only behind housing and transportation expenditures. Furthermore, the Consumer Price Index (CPI) report indicates that food prices, including grocery and restaurant purchases, increased by 2.6% from January 2023 to January 2024.
Thus, spending less on food can help you save money fast on a low income, but you need not compromise on health. Here are some practical ways to lower your food expenditures:
- Limit ordering takeout: Plan meals in advance to avoid the need for last-minute fast food. You can do this by creating a weekly menu plan and scheduling time for meal prep.
- Lessen going on restaurant trips: Make dinner with friends or go on picnics. This provides a fun and social experience and allows you to save money and control the ingredients in your meals. You can make it a potluck-style event where everyone brings a dish or plan a themed dinner party to make it more interesting.
- Avoid ordering drinks: Skip ordering drinks, as restaurants often mark them up significantly. Instead, opt for water, which not only usually comes free but is also a healthier choice. You can also save money by carrying a refillable water bottle with you.
- Make coffee or have drinks with friends at home: Enjoy drinks in the comfort of your home. You can make your own coffee or tea or even try making cocktails or mocktails with friends. This provides a fun and cost-effective way to socialize.
6. Do a “No Spend Month” Challenge
Committing not to buy anything new for a month every now and then can be a great idea. While you will still need to purchase essential monthly items like food, pay bills, and replace necessary items such as toothpaste or shampoo, you can commit to not buying new clothes, make-up, books, sports gear, or online movies, among others. Aside from being able to save, you are also practicing discipline in your finances.
Connect with social groups that give away free items instead of selling them. You can also spend more time decluttering and selling items you don’t need, cooking meals from scratch, and creating handmade gifts for your loved ones. Taking on this simple challenge can significantly increase your savings.
7. Use Auto-Pay for Monthly Bills
Another way to save money fast on a low income is to set up automatic payments through your credit card or bank account for each monthly bill you choose to keep. This proactive step helps avoid expensive late fees and deters the accumulation of additional interest–a particularly valuable practice when managing a tight budget.
Important Note: Only link your bank account to trustworthy companies to prevent fraud risks. Consider using Cushion, an innovative money management app that not only automates payments for your chosen subscriptions but also tracks Buy Now, Pay Later (BNPL) payments. With real-time bill updates sent to your Google Calendar, you can stay on top of your expenses and avoid late fees.
Summary
Living on a tight budget doesn’t need to stop you from building savings and adopting smart money habits. Regardless of your earnings, carving out space for savings, even in modest amounts, sets you on the path to achieving your financial goals and securing financial stability down the road. Trying out these small steps to save money fast on a low income is a great way to maximize your income and level up your financial game over time.
