Saving money quickly when you make a lot of money is easy, but is it possible to do that on a low income? When money is tight, it feels like it’s impossible to save. But it’s 100% doable if you come up with a plan and stick to it. I’ll provide the plan, the discipline is up to you.
1. Lower Your Housing Costs
Housing is the largest expense for the average American. Because of the payment size, even a single digit reduction can mean hundreds of extra dollars in your pocket. Here’s how to do it.
- Downsize: If you plan to relocate to a smaller (and cheaper place) take note of the items you actually use, and purge the rest. Whether you sell, toss or donate unused products, follow the old carpentry axiom, “measure twice and cut once,” so you can comfortably live in a smaller place.
- Relocate: It’s possible to maintain your standard of living without paying more, by relocating. And sometimes, depending on where you live, you can upgrade your housing and pay less. Some cities offer relocation grants and moving expenses may be tax deductible.
- Rent out a room: if you have a spare bedroom you don’t use, you can rent it out and earn extra cash through Airbnb or Craigslist. If you own your home, check your local laws first. If you rent, consult your landlord before you do anything.
2. Pay Down Debt
Interest on debt can quickly erode your savings. Paying down debt is one of the best ways to save money quickly on a low income. Once the debt is gone, you pocket the difference.
- Pay down high interest debt first. This is the most expensive kind of debt to have. If you have a combination of debt, start with whichever has the highest interest rate. In the meantime, make minimum payments on your other cards until the highest debt is paid off.
- Pay more if you can. If you’re aggressively paying down a high-interest debt, then paying just the minimum on other debts is OK. But know that this costs you more in interest payments. Try to double your minimum payments if possible.
- Hide the cards. Or lock them via your card issuer’s mobile app. If you habitually reach for your credit cards at checkout, try to wean yourself off credit and transition to paying cash. This makes paying off your credit card debt much easier.
3. Create a Budget
Money not budgeted is money that’s easier to spend. And money that’s easier to spend is, obviously, harder to save. That’s where a budget comes into play. It keeps you accountable and in alignment with the best interests of your future self.
- Consider a 50/30/20 budget. This budgeting system requires you split what you make across three categories: 50% to necessities, 30% to wants and 20% to savings or debts.
- Think about using a best-in-class budgeting app like Mint, Clarity Money or Personal Capital. These allow you to track your financial health in real time, as well as ax unnecessary expenses right in the app. You can even monitor your credit score.
4. Automate Your Savings
Saving is hard but if you automate it, you remove the friction: no transfers or last-minute number crunching needed. The less friction, the easier it is to save long-term.
- If you get paid weekly or bi-weekly: Many banks allow you to set up an automatic transfer from your checking account to your savings account. The key is to choose an amount you can realistically put away. Start small. You can always add more as you grow more confident.
- Consider a banking alternative like Simple, where you can have your debit transactions rounded up the nearest dollar, with the difference going into savings.
- Use an investing app like Acorns to have your spare change put into an investment account. Your risk level will determine which portfolio you choose. This is another great way to ‘tax yourself’ or automate your savings.
5. Make Every Dollar Count
You can make every dollar go further using cash back apps. We recommend Dosh. When you use Dosh, you earn cash back when you shop, dine or travel. Just download the app, link your debit and credit cards and start earning money back on purchases.
There are no coupons or receipts to scan. Just shop like normal and that’s it. You can schedule withdrawals of your cash back via PayPal, cash or bank transfer. Dosh works at thousands of stores, both on- and offline. Using an app like Dosh guarantees you’ll save money no matter where you shop or what you buy.
Other apps to consider:
- Rakuten. Formerly eBates, Rakuten mails you a check every quarter with your earned cash back (you can be paid quarterly via PayPal too). You can earn from 1% to as much as 40% cash back on purchases, and up to $25 for referring friends.
- Paribus. This app by Capital One is like having a negotiator working for you 24/7/365. Here’s how it works. Say you buy something and then it goes on sale. Paribus files a price adjustment claim on your behalf, so you get the difference back automatically.
- Swagbucks. This site is one of the most popular ways to make money. You can do so by watching videos, playing games, taking surveys and surfing the web. But one of the best ways to earn money with Swagbucks is by shopping through them. They give you a $10 bonus once you join and spend $25 in their Swagbucks store.
Our Two Cents
Saving money on a low income is hard. After a few weeks, you might feel discouraged from a perceived lack of progress. Don’t. There are numerous ways to save and save quickly. Find the ones that work best for you from lowering your rent and housing costs to paying down your high-interest debts to automating your savings. Make every dollar stretch by using cash back, investing, and budgeting apps.
And one last thing. Don’t get discouraged. Just because it’s hard doesn’t mean you can’t do it. And just because it’s taking a long time doesn’t mean it’s not working. You can do it.