Last Updated on February 25, 2025
Contents
- 1 Learn How to Budget Money on a Low Income
- 2 How to Save Money Fast on a Low Income
- 3 How to Save Money for Low-income Earners by Tracking Expenses
- 4 How to Save Money with a Low Income by Reducing Housing Expenses
- 5 How to Budget Money on a Low Income
- 6 Do You Have More Expenses Than Your Income Allows?
- 7 How to Budget the Right Way to Save Money
- 8 Frequently Asked Questions (FAQs)
Learn How to Budget Money on a Low Income
Think saving money on a low income is impossible? It’s not about how much you make—it’s about how you manage it.
Even with a tight budget, a few smart tweaks can make a big difference. Whether you’re living paycheck to paycheck or just looking to stretch your dollars further, these five simple tricks will help you take control of your finances without feeling restricted.
Most people think you can only save money if you earn a lot, but that is not true. With a stable source of income, you can budget and save money with each check (in a bank or your home). Let’s learn how to budget money on a low income with commitment and an efficient, realistic plan.
How to Save Money Fast on a Low Income
There is no secret recipe to saving money fast. Some people save money fast by cutting down on their expenses, while others strive to increase their income. Applying some of each method might work best. Another option to save money is to put your savings to work. The little you have can produce more. For example, you could invest money to get returns, but it is essential to remember that investments carry risks.
No matter what option you choose, saving money will take a while on a limited budget. That is why it’s important to be patient and realistic when establishing your goals.
For example, if you earn $3,000 per month, you will probably not manage to save $1,000 every month. Start with a smaller goal. Try to put aside $300 every month. If you can increase your income, adjust and start saving more. A good rule of thumb is to save at least 20% of your salary. If that is not possible, you might be able to save 10%.
How to Save Money for Low-income Earners by Tracking Expenses
Do you ask yourself why you can’t save money? The answer might not be due to a low income. In most cases, it is the result of poor budgeting. Unfortunately, many people don’t realize the difference that a proper budget makes. Only around 40% of Americans use a budget to organize their finances.
Let’s focus on step one of the process. Proper budgeting is like the cure to a disease, and before you take medicine, you need a diagnostic. First, look into where your money is going each month. Do this by tracking your spending.
If you use internet banking, it should make the process easier. You can log in to view your balance at any time. You’ll also get a detailed situation of how much you’ve spent and when.
If you don’t use internet banking, opt for the classic method. Write down all your expenses on a daily or weekly basis. Keep this journal for a month, writing down every purchase and the corresponding amount accurately. By the end of the month, you should have a better picture of where your money is going.
First, concentrate on unnecessary spending. For example:
- Takeout coffee
- Home delivery meals
- Clothes
- Eating out
These are all non-essentials. Spending hundreds of dollars on these every month is not required for your survival. If saving money on a low income is a priority, try to cut down on these expenses. Eat out less often. Give up on takeout coffee altogether. Buy clothes only when you need them. These are a few ways you could save money. It is also a good idea to have a clear goal in mind. Set a savings objective for each category.
- Make a list of all your unnecessary expenses.
- Set a percentage you want to save from each category.
- Start putting that plan into action.
Here is an example:
Expenses category | Average monthly amount spent on it | Savings goal | New Monthly Average |
Home delivery meals | $250 | 10% – $25 | $225 |
Clothes | $150 | 25% – $37.50 | $112.50 |
Takeout coffee | $85 | 15% – $12.75 | $72.25 |
Total | $485 | $75.25 | $409.75 |
It might not seem like you are saving much but consider doing the same for all spending categories. It could add up to savings of hundreds of dollars more per month.
How to Save Money with a Low Income by Reducing Housing Expenses
Cutting down on unnecessary spending is difficult, but it is something to which you can become accustomed. The hardest part is to reduce your necessary expenses. To do this, you need to put in extra effort. For example, you might live in a rental property. Here are a few solutions to reduce your rent cost:
- Try moving in with a roommate.
- Move to a more remote but cheaper area.
- Rent a smaller place.
- Move in with your parents for a while.
Is a mortgage your most significant monthly expense? You need to make sure you pay this loan every month. The best way to reduce it is to pay it off faster.
You can also try to find programs that lower your mortgage. For example, a refinance program might help you avoid a high interest rate. Unfortunately, the longer it takes to pay off the loan, the more interest you accumulate. If you have just enough for the monthly payment on your limited budget, here are some alternatives to cut down costs:
- Rent out one of the rooms through Airbnb.
- Lease one of the rooms.
- Use less water and electricity to cut down on utility costs.
- Shop around for providers that charge less on gas, cable, etc.
- Use the half-payment method for your bills and avoid penalties.
How to Budget Money on a Low Income
Creating a budget plan entails the same steps. No matter your earnings, follow the same rules:
- Determine your monthly income
- Calculate your expenses
- Set up a fixed budget for each expense
- Stick to the budget you’ve established
When you calculate your income, include everything. Start with your salary. If there are any side jobs you have, include them. Make sure you add every dollar you are paid as income. If you’re a freelancer, a fixed income may not be possible. In this case, calculate an average of the past three months to use as a baseline for your budget.
The second step is the most difficult and where people start making mistakes. Expenses don’t just refer to recurrent costs. Your rent, mortgage, or bills are necessary expenses that take a large share of your income, but there is more to consider. You should also add up the cost for
- Groceries
- Gas
- Insurances
- Subscriptions
- Clothes
- Cosmetics and skincare products
- House cleaning products
- Medicine
- Pet products
Anything you buy regularly should appear on your budget list. Then, figure out your non-essentials, like eating out or going to the cinema. Write all of these down. Compare your spending with your earnings. How does the situation look? Do you have anything left for your savings account? If not, you need a budget strategy to start saving money.
Do You Have More Expenses Than Your Income Allows?
That is not where you want to be. Spending more than you earn means having debt. It doesn’t matter if these are credit card debts or money you borrow from friends. If you plan to save money, you can’t afford them. Before you put together a budget plan, focus on eliminating debts. First, stop using credit cards. Then, if your debts are low, pay them off.
Once you’re debt-free, it’s easier to budget and save money. However, you’ll need time and a good debt payoff strategy if you have large debts. For example, you could use the debt snowball method. It helps you focus on paying off your small debts while making monthly payments. Then, hopefully, you can even fix your credit faster.
The debts category needs to be part of your budget until you have eliminated it. You should make sure you never skip these payments. Otherwise, you only end up paying more in penalties.
How to Budget the Right Way to Save Money
The reason to budget is to make sure you can afford everything you need without loans or too many compromises. There is an even bigger goal to budgeting, though, saving money. Here are a few strategies that help you achieve both.
The 50-30-20 method
The 50-30-20 budgeting method involves the following steps:
- Calculate your monthly income.
- Divide it into three main categories:
- Needs
- Wants
- Savings
- Assign a strict budget to each: needs (50%), wants (30%), savings (20%).
Zero-based budgeting
Zero-based budgeting is a straightforward budgeting method. First, subtract your expenses from your income. Then, make sure they equal zero. In other words – every dollar has a specific purpose. Next, divide your entire income into several categories. There is no room for uncertainty. Of course, you cannot know what your spending will look like every month, so use broad categories. For example
Expenses | Allocated budget from a total of $3,300 |
Food | $1,000 |
Gas | $450 |
Bills | $350 |
Rent | $1,500 |
Remaining budget at the end of the month: $0 |
If there is any money left after budgeting, put it in a separate buffer category. Then, use it as an emergency fund you can rely on if needed.
3. The envelope system
Much like zero budgeting, this strategy also involves several spending categories. It requires you to put money into separate envelopes for each.
Today, you can use digital envelopes to streamline the process. There are apps and internet banking tools to help you out. Once your envelopes are full, start spending. Stop spending on each category if the money in the envelope runs out. Avoid moving funds from one envelope to another.
4. The pay yourself first method
This budgeting strategy is also called reverse budgeting. Unlike most budgeting methods, it doesn’t leave the savings category for last, it is the priority. With each paycheck you get, pay yourself first. In other words, put money in a separate savings account.
Afterward, begin budgeting for all the other expenses. It is an efficient method if your main goal is saving money. How much you should save is relative and depends on your salary and the rest of your expenses. It would be best if you tried to save between 10% to 20% of your income. You’ll have a nice savings fund for emergencies or retirement by the end of the year.
5. The priority budget
The priority budget is a flexible budgeting method that allows you to establish your priorities. You don’t have to use a strict share of your budget for a particular purpose. Instead, make a list of your expenses and arrange them in the order of their priority.
For example, is saving money your number one priority? Then put it on top of the list. Afterward, cover all your monthly debts (bills, rent, etc.). Then, from what is left, transfer the largest share to your savings account.
Frequently Asked Questions (FAQs)
How can I budget money on a low income with debt?
Even on a low income and with debts, you can still budget and save money. What it takes is commitment and a smart budget plan. First, scrutinize your spending. Understand where and why you spend the most. Then, try to eliminate any frivolous spending. Also, make sure you consistently pay your monthly debts. Until you become debt-free, these are the priorities.
How can I avoid debt on a low income?
When you earn little, it may be tempting to take loans. Credit card debts are the most common ones. It’s easy to access them, but you can get trapped once you do. The debt continues piling up. Each time you go shopping, you know you can buy more than you can afford. Avoid this by paying cash.
How can I increase my income when it’s low and still save money?
Increasing your income is one of the best ways to save money. There are different solutions for this. First, you can try to get a new job to earn more, but this might not come easy. The fastest solution can be a side hustle—something you can do only a few hours per week for some extra cash.
Sources:
The reality of investment risk. The Reality of Investment Risk | FINRA.org. (n.d.). Retrieved July 12, 2022, from https://www.finra.org/investors/learn-to-invest/key-investing-concepts/reality-investment-risk
How much should I save each month? TIAA. (n.d.). Retrieved July 12, 2022, from https://www.tiaa.org/public/learn/personal-finance-101/how-much-of-my-income-should-i-save-every-month
Mortgages. USAGov. (n.d.). Retrieved July 12, 2022, from https://www.usa.gov/mortgages
Kagan, J. (2022, March 24). Zero-based budgeting (ZBB). Investopedia. Retrieved June 25, 2022, from https://www.investopedia.com/terms/z/zbb.asp
And though some of us can legitimately point to low earnings as a reason for not saving. (n.d.). Nearly 3 in 5 Americans are making this huge financial mistake. CNNMoney. Retrieved July 12, 2022, from https://money.cnn.com/2016/10/24/pf/financial-mistake-budget/index.html#:~:text=According%20to%20a%20recent%20study%20by%20U.S.%20Bank%2C,budgets.%20But%20there%20is%20so