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We all dream of having a nice nest egg, money in the bank, and financial security. But saving can seem downright impossible when you’re living on a low or limited income. Between covering basic needs like food, housing, and other bills, there’s barely anything left over at the end of the month.
But savings are crucial to healthy finances. For instance, according to a Bankrate survey, 22% of Americans have no emergency savings, and only 44% would use savings to pay for a $1,000 expense. Having no emergency savings often leads people to costlier forms of borrowing, such as credit cards and personal loans.
With creative thinking, anyone can start padding their savings account, even on the tightest budgets. The small amounts you can put away add up over time. It may take longer to hit your targets, but you can make it happen. Saving money is challenging but achievable if you commit to prioritizing it. Here’s how.
1. Get clear on your goals
Are you saving for emergencies? A dream vacation? Going back to school? Putting a down payment on a home? Get emotionally connected to your reason why saving matters. Post it somewhere, and you’ll see it and make it part of your money mindset.
You’re far more likely to stick to your saving efforts when you have a clear purpose behind them. Saving for its own sake often loses momentum. Know your why to inspire yourself through those challenging months.
2. Start small
When funds are limited, people often give up on saving because they figure the tiny amounts don’t make a difference. Even consistent small deposits add up over time.
Begin by saving just 5% or 10% of your earnings, even if it’s $20 or $50 a month. The mere habit of regularly setting aside money builds your savings muscles.
Help yourself by automating any payments possible so you don’t miss due dates for rent, utilities, and minimum debt payments. Going on autopilot reduces potential late fees and credit score damage. Open a separate savings account to track your progress.
You can also use strategies like round-ups, which round every transaction to the nearest dollar. Some banks and money-saving apps offer this feature, either investing the money or saving it.
3. Make saving a priority
List your monthly essential spending, including rent, transportation, and food costs. From there, you can determine how much you can put into your savings.
Bring savings to the forefront by putting cash in savings on payday before money starts flowing out the door. Many wait until the end of the month to put the leftovers in savings and wind up having nothing to save.
“Make sure the budget includes savings as a line item,” says Kyle Enright, president at Achieve. “That way, savings becomes a “bill” you pay to yourself.”
4. Reduce your expenses
If you have a low income, you must reduce your expenses. Sometimes, you must rethink those expenses and how to do things while spending less. This is where creativity comes in handy.
While you often hear you should cut out your daily coffee — it helps to think a little bigger.
“These changes make a small dent when you look at the bigger picture,” says James Beckett, financial coach and founder of Money Stocker. “Instead, I recommend clients take a look at the big-ticket items they have been spending money on over the last year.”
This includes:
- Housing: There are several ways you can reduce your housing costs, including moving to a smaller house, getting a roommate, or negotiating your rent. The key is to rethink your living situation and how to reduce your monthly housing costs or offset it by bringing in extra income.
- Transportation: If you live in a city where you can easily access public transportation, try getting around by train and bus and walking or bicycling.
- Food: Food and groceries are necessary expenses for all of us, but there are many ways to save on food costs. For instance, you can prepare meals in bulk or learn cheap, healthy recipes.
- Insurance: Shop for the best deal, and consider bundling your home and auto insurance to save money.
5. Boost your income
Another potential solution is to make more money, as saving can be burdensome if your income is low.
You can try various side hustles to increase your income, such as freelancing, food delivery, or rideshare driving. Side hustles often depend on where you live, with some places being better for some side hustles than others. You may also want to try to get a raise or promotion at your current job.
An extra $100 or $200 a month from part-time work can add up to thousands put away over time. Plus, the psychological reward of actively generating savings keeps you motivated.
6. Optimize your savings
Once you have reduced your expenses and increased your income, it’s time to optimize your savings.
To keep yourself on track with your savings goals, it can be helpful to find an accountability partner. Ideally, this should be someone in a similar situation — similar income, expenses, and life situation. This can help you motivate and keep one another working toward your goals.
Staying on track is tough if you don’t know where your money is going. Tracking your spending mindfully will help you be more intentional with your spending and reduce potential “leaks” in your budget.
One way to do this is by noting how much you typically spend daily. If you find you spend an unusually high amount some days, analyze those days further to see if there are ways you can cut back.
The bottom line
Small changes can lead to big differences — even with a low income. You can start by reducing your expenses, boosting your income, and automating your savings. The difference can initially seem small, but these changes can help you save thousands more in the long term. The sooner you get started, the sooner you’ll be on track to saving more money.
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