How can I save money on a low income?
It’s a tough gig to save money on a low income, however, putting money aside is an investment in your future. Fortunately, you don’t have to sacrifice fun in your life to start saving. With the right strategy in place, saving money can be fun, especially when you see your savings grow fast. In this article, we’ll run you through some simple money-saving tips to help you kickstart your savings journey!
Now, we’re not financial advisors, but we’re pretty adept at research so we’ve trawled the web for some of the best advice on saving and how to get started when you’re just making ends meet.
Why should I be saving in the first place?
With loans easily accessible online, buy-now-pay-later on hand and credit card offers all around us, saving money may seem less important than it used to be. Yet, if you think savings are nothing more than a boring concept your parents kept nagging you about, think again. Looking after your financial wellbeing is important – for a number of reasons. For one, having money saved up ‘for a rainy day’ provides you with freedom. For example, if you’re sick of your current job, a savings fund could provide a buffer that allows you to leave without having a new position lined up.
Savings can be a base for future investments and may provide security in case of an unexpected change of circumstances – ahem, COVID-19. Saving money can be empowering and will allow for the occasional splurge without guilt. So, building up savings doesn’t always mean you have to miss out on things. If you can find a strategy that works for you, saving money can happen naturally and without you having to think about it.
7 Money-saving tips to help you get started
1. Set yourself a goal
Firstly, what do you want to achieve? Would you like to save three months of expenses to have a safety buffer? Are you saving for a big holiday? A larger purchase?
We often set goals for our personal life and completely forget to think about our finances. Setting the right goals may feel tricky when you don’t know where to begin. Start by asking yourself a few questions:
- Where do I see myself in one, five and ten years for my job, living situation and personal life?
- What lifestyle choices and standards are important to me?
- How much money do I need every month to support these lifestyle choices?
- Which assets are important to me?
- Do I have any big trips/expenses that I could plan for?
Why is lifestyle important for your savings strategy? Well, lifestyle choices take up most of your cash flow. Do you own a car or do you take public transport? Do you pay for a gym membership? How often do you eat out? In which areas of your life are you willing to make compromises? These questions would likely impact what you spend your cash on and should be taken into consideration when planning your budget.
Have some big purchases on the horizon? Whilst daily lifestyle purchases have little wiggle room, you could see how many big-ticket items have to be paid for upfront. They often come with the option to purchase on finance and pay-off over time. It’s worth looking into any interest or fees associated with layby-type arrangements.
How to set achievable financial goals
Did you know that you can add a little automation to your savings strategy so that you don’t have to think about it as often? Before we get to the tools, let’s look at setting achievable financial goals.
1. Keep them realistic.
When it comes to financial goals, it’s crucial to ensure that they’re achievable. “I want to be a millionaire by 28”, might be realistic for but a rare few, so try not to set yourself up for disappointment. By setting achievable goals or breaking your goals up into smaller milestones, you can keep it fun and rewarding.
2. Be specific.
“I want to save a lot of money”, probably won’t get you anywhere. How much is a lot and when would you like to achieve your goal? Instead, go for the goal of saving X amount after every paycheck you receive or a target amount to, for example, cover your costs for a set amount of time so you have what is known as a buffer. This can give you an actionable plan you’re more likely to stick to. Most banks also allow you to automate this process so you can set and forget.
3. Set a timeframe.
Sometimes life dishes out lemons and that’s okay. However, setting yourself milestones within a certain timeframe will help to keep you accountable and get you back on track.
2. Set up different savings accounts
If you have multiple savings goals, it may be a good idea to set up individual accounts for each goal, making it easier to stay on track. It’s worth checking to see if your banking app will allow you to split direct savings into different accounts automatically. One account, for example, could be your safety buffer, the other one could be dedicated to your next big holiday.
3. Every cent counts
When you don’t have a big budget, it can feel daunting to attempt to reach a big savings goal. However, when you start saving money, it’s about consistency. Even if you start small and manage to save a few dollars each week, you will quickly notice your savings account grow. Small habit changes can make a big difference.
4. Watch your daily habits
It’s not usually the one big purchase that breaks the bank, it’s the small, regular habits that start to add up. Have a look at your bank account and evaluate your last month. What do you spend the most money on?
What do you indulge in? That takeaway frappuccino you get on your way to work costs you $5 every single day. This is a habit you may be able to change. Even if you just swap to a home-made coffee every other day, you can contribute $15 each week into your savings account. It is that easy and you can still afford to treat yourself now and then.
5. Automate your savings
It’s easy to forget about savings when life gets busy. Luckily, many banking apps allow you to automate your savings. You can determine a certain amount of income to automatically go into a savings account. Additionally, some apps allow you to use round-up features. Whenever you spend money, the app automatically detracts a round amount from your account and puts any extra money into a dedicated savings account.
6. Cut out unnecessary expenses
Remember that gym membership you signed up for with the best intentions and then only went twice? Do you need a Netflix AND a Stan account? Check your subscriptions and memberships and get rid of the ones that you aren’t using. If it doesn’t spark joy, you don’t need it.
Tip: All that extra cash from your cancelled subscriptions can go straight into your savings account. You won’t feel it and it helps your savings grow.
7. Apply the 30-day rule to big purchases
Have you ever spent money on a whim only to regret it later? We have, too. But that can be prevented. Whenever you are planning to splurge on something big, take some time to think about it. Do you really want it? Is this the best price you can get? If it’s not an urgent purchase, take 30 days, do your research and consider how many hours of your salary go into this purchase. If you still want it after 30 days, go for it.
Popular strategies for saving
When it comes to money-saving tips, you will be more successful with a structured plan than by making sporadic payments to your savings account. Your best strategy may depend on your goal and how much spare cash you have available.
Saving money doesn’t mean you should cut down on things you really enjoy. Instead, we recommend that you look for areas where you are spending more than you should and where those changes would feel easy to incorporate. This could be skipping every other takeaway coffee or taking lunch to work twice a week. You don’t have to put aside big money to grow your savings, with consistency you will see a difference in no time.
The 50:30:20 strategy
Popularised by U.S. Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan, this strategy could be a good starting point when you don’t know what to do. As a rough guideline, use:
- 50% of your take-home income to cover your needs. This includes any fixed costs like housing, utilities, health care and additional medical bills. In short, things you can’t compromise on.
- 30% of your take-home income can be spent on things that you want. Things like takeaway food, Friday drinks, clothes, or any trips you may want to take. This category is important because these things make you happy.
- 20% of your take-home income should go towards your savings and debt repayments. Your priority here should be paying off immediate obligations like your mortgage, loan repayments, etc. The rest should go towards short-term and long-term savings.
Many banks allow you to split your income automatically into different accounts. Once set up, you won’t have to worry about it. Make sure you keep an eye on your budgets.
Pay yourself first
We naturally prioritise bills, so getting paid may not feel fun when that’s all you think about. That’s why some suggest that you pay yourself first. Instead of paying your bills straight away, transfer yourself a set amount of money to enjoy. This can be spent on things you like to do as a reward for your hard work.
Make sure you don’t overspend! Paying your bills is still important. This strategy is more of a symbolic act, valuing your hard work and making saving money easier in the process.
If you’re on the hunt for money saving tips, then budgeting apps and other tech tools are bound to come up. With the influx of tech we now have in our everyday lives, we’re spoilt for choice when it comes to managing money. Budgeting apps typically integrate with your existing internet banking to provide a real-time summary of your income and expenses. Many are also free, so it’s not difficult to get started. The trouble generally comes when you’re trying to decide which app is right for you. Type the word ‘budget’ into your phone’s app store and it may be difficult to know where to start. Ultimately, you may have to try out a few different options before you find the right one to suit your needs.
While you’re weighing up your options, make sure to check out our top picks for the 9 best budgeting apps for Aussies!
Other helpful resources
We hope you picked up some useful money-saving ideas from this article. At the end of the day though, we’re not financial advisors. If you’re really struggling to manage your cash, we encourage you to seek professional advice from a qualified advisor. There are free government tools available, like MoneySmart. So, make sure you explore your options.
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