When you’re living on a tight budget, it can seem impossible to save money. But even if you’re working with a small amount of income, there are still ways to build up your savings. The trick is to get creative with your finances and reduce spending in areas where you might not even realize you’re wasting money.
Find out if you qualify for low-income utility assistance programs:
If you don’t have the money to pay your electric, water, or gas bill, you may be eligible for financial assistance from a government-funded program. These programs are designed to help low-income families with energy bills by providing discounts on their monthly bills.
Each state has its utility assistance program, and eligibility requirements vary by state. You can learn more about how these programs work and whether or not you qualify by checking out our guide to getting utility assistance.
Change to a Prepaid Phone Plan:
If you’re on a tight budget, you don’t have to spend hundreds of dollars every month to get phone service. If you can live without the bells and whistles of a contract plan, prepaid cellphones offer a simple alternative, and they aren’t just for people with bad credit. There are some drawbacks to going prepaid. You’ll have to pay the total price for your phone, and you won’t be able to use it overseas. But if those things aren’t deal-breakers, here’s everything you need to know about going prepaid.
Save Money on Groceries:
When you’re on a tight budget, paying close attention to where your money is going is essential. In many circumstances, it is possible to take tiny steps you can take that will save you big bucks in the long run. That’s true when it comes to grocery shopping. There are many ways to cut your grocery bills without compromising nutrition or quality. Here are some ideas:
Don’t buy prepared foods.
They’re convenient, but they’re also expensive — sometimes much more expensive than the raw ingredients. If you’re buying prepared foods, ask yourself if it’s worth what you’re paying for them.
Make a menu and shop with a list.
It’s a simple way to cut down on impulse buys. Plan out what you’ll eat each week, then make up a shopping list and stick to it when you go to the store. Making out a menu will force you to consider how much money you’ll spend on groceries during the week, and having a list will keep you from spending extra at the store itself.
Shop from home
With so many sites contributing free delivery, it’s easier to stock up on nonperishable items like canned goods and paper products online.
Pretax savings possibilities:
Pretax savings options allow you to set aside part of your paycheck before payroll taxes are taken out. You contribute money from your paycheck into a pretax account. You then use the funds for health insurance premiums or eligible medical costs, dependent care services, or retirement savings. Because the money in these accounts has not been taxed yet, there’s less of it available for spending. The pretax amounts you contribute to these programs reduce your taxable income dollar-for-dollar. For example, say you earn $1,000 per week and contribute $100 per week to your 401(k). Your taxable income would then be $900. You pay federal income taxes only on the $900 taxable income instead of $1,000. That means less of your paycheck is subject to national income.
Monthly bank fees:
If you’re on a tight budget, consistency is critical. There are many ways to keep your banking costs consistent each month, and avoiding monthly bank fees is an excellent place to start.
It’s possible to get free checking with no strings attached. But even if you do have a fee, there are plenty of ways to avoid it. Here are some things to keep in mind:
Keep an eye on your balance. When it’s time for the bank to deduct your monthly fee, you’ll be charged if you’re below the minimum amount required to avoid the price. It could be as simple as keeping an eye on your account balance to ensure you’re above that threshold before the charge hits.
Set up direct deposit. Some banks will waive the monthly maintenance fee if you set up a direct deposit from your paycheck or another account. The amount required for direct deposit varies by institution and account type, so check with your bank about its specific requirements.
Change accounts or banks altogether. If you don’t think you can meet the requirements needed to avoid fees at your current institution, consider opening an account at another financial institution that doesn’t require minimum balances or offers fee-free checking accounts.
Don’t use credit cards:
If you know that you have a bad credit score, it might be time to start looking for ways to rebuild and improve your credit score. The first step is to stop using your credit cards. You should stop using your credit card completely if you have a tight budget and are trying to improve your credit score. If you are still struggling to pay off your credit card, even if you only use it for emergencies, it is time to stop using it. If you want to avoid getting into debt, this may not be an option. To help you pay off your debts faster, consider paying more than the minimum payment each month on your credit cards. You can also try to negotiate with your creditors so that they will lower the interest rate on your balance or extend the date of when the payment is due so that it is easier for you to pay off the balance.
Set a savings goal:
You may think your budget is too tight to save. But if you want to get a step closer to your goals, these three savings challenges can help you build better money habits without stressing you out. Set aside $1 a day for 30 days. It’s hard to get started saving when you’re used to living paycheck-to-paycheck. That’s why this savings challenge is designed for people with tight budgets. Do it now and put yourself on the path to saving $30 in just one month.
Save your spare change for one week. You may not have planned on coming home with an extra $8 after a trip to the grocery store. That doesn’t mean that money isn’t yours! This savings challenge asks you to save all the coins you come across for a week and deposit them into your savings account at the end of the week. The average American spends about $28 each day, which adds nearly $200 a week. If you round up or down each time you pay for something, it can add up fast! Save $5 from every paycheck for one year. Saving $5 each payday is easy and painless, especially when your employer does automatic transfers directly from your salary.
Finance automation:
Automation has become the buzzword of the decade. It promises to help us do more and spend less. And when it comes to your finances, automation can be an excellent tool for managing your expenses, saving for goals, and even paying off debt.
Here are four ways you can automate your finances if you’re on a tight budget:
Have your paycheck deposited into an account that offers a strong rate on savings. Many banks and credit unions offer high-yield savings accounts that can earn rates near 2 percent APY or more. Compare rates across institutions and make sure you’re maximizing your earnings on your hard-earned cash.
Automate transfers to your savings account. You can set up automated transfers from your checking account to periodically add money to your savings, making it practically effortless to build up an emergency fund or save for another goal.
Use autopay options with creditors to avoid late fees and penalties if you get hit with late fees every month because you keep forgetting to pay a particular bill; set up autopay so you don’t have to worry about it anymore and avoid those extra fees as well.
Set up alerts from credit card companies to know when you’re approaching or going over budget on certain items such as groceries or dining.
Mortgage refinance:
It’s not a good idea to refinance your mortgage if you already have a tight budget. Refinancing your mortgage will cost you money upfront, and at least some of those costs are likely to be added to your loan balance. According to the latest Freddie Mac Primary Mortgage Market Survey, the average $250,000 30-year fixed-rate mortgage has a 3.76% interest rate. The average 15-year fixed-rate mortgage has a 2.99% interest rate, and the 5/1 adjustable-rate mortgage has an average interest rate of 3.12%.
If you don’t have enough cash on hand to pay for refinancing costs upfront, the lender will add them to your loan balance. That’s called rolling closing costs into your loan amount. For example, say you’re paying a $400 fee to get out of your old mortgage and into a new one. If that’s rolled into your new loan balance, it’ll increase your principal by that amount, making it more expensive in the long run (because you’re effectively paying interest on that amount as part of your loan).
