Most of us think that while it is easier to save money when we have a high income, but it is nearly impossible to save with low income. In this article, we will explore 5 practical ways to save money on a low income.
How To Save Money |
1. Reducing Housing Costs
Whether you live in a rented house or you own the house, the cost of your housing will be your largest expense every month. Financial experts suggest that the total of your rent or housing loan payments should not be more than 35 percent of your net monthly income.
While this expense eats up a lot of your monthly income, it also offers the opportunity to find cost reductions, essentially allowing you to save more money even if you are earning a lower income. For those living on rent, there are numerous ways you can reduce your housing costs. The first way is to find a cheaper place perhaps a single BHK will be adequate for your needs instead of continuing to rent two BHK.
There are also other ways to reduce your current rent that can include negotiating an exchange of your services like doing renovations for a rent reduction or agreeing to sign a longer lease if the tenant security is what your landlord wants.
If you are a homeowner, then simple things like turning off the lights and reducing your water usage can lead to substantial savings over time.
Also, the best way to offset your housing costs is to rent out a room rent a room in your home, which can easily get you additional income every month. This extra income can help pay your bills allowing you to put more money in your bank at month’s end.
2. Avoid debt
If you want to save money while having a lower income, then you must avoid debt. This is because debt stops you from saving in two ways.
Firstly having that means monthly repayments. Every month creditors will be knocking at your door for money. If that debt is avoided, more money will be in your pocket at month’s end.
Secondly, debt is always associated with monthly interest charges. This interest charge seems like a small amount of money, but when compounded monthly, it can begin to add up. When you total the amount of all of your repayments and their associated interest charges, you realize how much impact this has had on your potential savings.
This pain is only further exacerbated when it comes to credit card debt which carries more than 30% interest per annum.
3. Reducing Entertainment cost
We all want to have fun and being engaged in recreational activities. But unfortunately, for many people, this comes at a hefty cost. Eating out, going to a movie theatre and other entertainment purchases can make a massive dent in your budget. But at the same time, we don’t want to lose out on social time with friends and relatives.
Thus the new ways to spend quality time with friends while not breaking the bank account can be like going on walks with my friends. Also, some other ideas can include having dinner parties at home rather than at a restaurant and watching a movie on Netflix rather than going to the theatre.
4. Understand your wants versus your needs
No doubt spending money makes us feel good, but when you are earning a low income and have a desire to save, you need to be able to separate your wants from your needs. For example, you may want to upgrade your phone to the newest model, but you probably don’t need to. You may want a new shirt to wear out this weekend but you probably already own plenty of good shirts. When you are not making a lot of money, you have to be extra diligent and spent only on your core expenses.
But the question here is how you should distinguish between want and need? The answer is anything that relates to your survival is a ‘need’. These are things like food, clothes, shelter, and transportation in their most basic form. Buying a Ferrari is transportation but in its most basic form taking the bus also gets you from point A to point B.
Anything that falls outside your needs group may be a ‘want’. This includes anything that is an extension of things you already own for example if you were to upgrade your phone to the new model just to get a camera with an extra two megapixels in it.
Now, of course, you can’t restrict your spending to the bare minimum forever so if you do want to splurge on one item set a financial goal you want to achieve like saving Rs. 25,000/-. Once you have achieved the goal, you can then go ahead and purchase the item you have been wanting.
This technique is excellent for two reasons. First, it helps you build the habit of forming financial goals, and second, it gives you time to process how badly you want the item as often we purchase things out of impulse. So if you want to ensure you save money on a low income, you must be able to delineate your wants from your needs.
5. Automate your savings
One of the best things which can be done for saving money is setting up automated deductions from your income source. These deductions allowed you to send part of your salary/income directly into a savings/investment account instead of the full amount going right into your operative saving bank account. Initially, this process can be started with 10% of your after-tax income, and gradually, this percentage can be increased.