How to save with a low income

Quick insights

• Assessing your current financial situation and defining your savings goals can help you prepare to save on a low income.
• Adjusting your lifestyle to strategically reduce your spending can help make room in your budget for savings.
• Those trying to save money on a small salary should consider seeking financial assistance and free resources to offset costs.

Depending on your unique situation, living off a small income can feel very restrictive. At times it may seem like saving for long-term goals is impossible, especially if you’ve been managing your finances on a month-to-month basis. However, with a clear understanding of your financial picture and an actionable plan, it’s possible to begin saving—even if it’s just bit by bit. In this article, we’ll walk through steps and solutions that can potentially help you develop a plan to save on a low income.

Take stock of your financial situation

Before you can plan to change your financial situation, you must first understand where your money is being spent. Especially when money is tight, pulling up these numbers can feel overwhelming, so it may be helpful to take it step by step.

Step one: Review recent spending

Begin by gathering the last two months of bank and credit card statements. Categorize your expenses using a budgeting spreadsheet, pen-and-paper notes or a budgeting app. Find your monthly totals (using exact numbers or an average where necessary) for rent, utilities, transportation, groceries, loan payments, subscriptions and entertainment.

This exercise may seem a bit tedious, but it’s crucial to identify where your money has been going. Through this process, it’s likely that areas of high discretionary spending in your budget will stand out immediately. Be sure to take note of these “hot spots” in your budget, as you may want to make cuts to these areas later.

Step two: Identify your financial goals

“Saving money” is a fine overall goal to have, but defining specific sub-goals can help you make changes with greater purpose and focus. Examples of specific goals could include:

• Repay high-interest debt: Prioritizing payments toward high-interest credit cards and personal loans can help limit how much you owe long term.
• Create an emergency fund: Setting up a fund exclusively for unexpected expenses can help you prepare for rainy days and avoid taking on new debt. Start with an achievable amount and increase this fund until you have a few months’ worth of expenses saved.
• Save for retirement: Think about saving for retirement as a marathon, not a sprint. Consistent contributions can add up over time, even if they seem modest on an individual basis.

Step three: Make a plan to achieve your goals

After you’ve determined your starting point and defined your goals, it’s time to make changes to your spending so that you can save. In a general sense, you will be working toward a better budget—a thoughtful use of every dollar. In practical terms, that means finding key spots to cut costs and implement smart tactics to save.

Cost-cutting strategies

Keeping your spending “hot spots” in mind, consider what changes you can make in daily life to reduce your expenses. These reductions might include:

• Using utilities more efficiently: Being thoughtful with how you use energy and gas at home can help reduce your bills. As an extra tip, check to see if your utility company offers discounted rates for low-income individuals.
• Strategic grocery shopping: Eating at home, making a meal plan, shopping sales and clipping coupons can help you use your food budget more effectively. Depending on where you live, you may also qualify for nutrition assistance programs to help offset your costs.
• Finding free entertainment: Enjoying down-time is important, but it doesn’t need to include costly subscription services or big nights out. Look for free events near you (especially at your local park or library) or consider taking up a creative hobby at home.
• Downsizing your living space: When assessing your housing or rent budget, consider if living in a different area or smaller space would be an acceptable trade-off for savings. In some cases, those earning a small income might also qualify for government-subsidized housing.

Smart ways to start saving money

After making your cuts, it’s wise to open a dedicated account to stash your savings and keep spending temptations in check. Once you’ve determined a realistic monthly savings goal, you should consider setting up automatic transfers to move money from your checking account to a savings account. Automating your savings (and other aspects of your budget, including bills) can help you keep to your plan with less effort. On occasions when you come into a windfall of extra cash, try to keep your savings goals in mind and put at least some of it away for later.

But saving doesn’t have to be all drudgery; in fact, there are ways to make it stimulating and even fun. For example, some people are highly motivated by savings challenges. Consider a “no-spend day” challenge or a “free entertainment month” to make the task of saving money more exciting.

Further solutions and support for saving on a low income

Saving money on a small salary is a challenging feat potentially made easier with the help of free resources and assistive programs. As touched on previously, those earning a low income may qualify for government assistance on food and housing or reduced rates on their utilities. Depending on where you live, you may also find community resources to help you build skills and meet needs while striving to save on a low income. Resources to look for include local food banks, affordable (or free) financial counseling, peer support groups and skill-sharing events. In some cases, these resources may be available online as well as in-person.

Bottom line

With careful planning and a commitment to the process, it’s possible to save money on a small salary. Keep in mind, life’s many fluctuations make regular budget check-ins and adjustments necessary to keep things on track. Even when the margins are slim, focused efforts and resourcefulness can help bring you closer to your financial goals.