by Kevin Sun
Do you struggle with saving money on low income? When every pay cheque you earn is just barely enough to cover your spending, setting some cash aside each month is likely the last thing on your mind. If you’re in a situation where you’re worried about how to survive on a low income budget, then saving might be one of your last priorities. However, if that’s not quite your situation and you’re instead focused on a goal such as saving for a house or want strategies on effective money management for low income families, then here are 4 tips that might help:
Is Your Income Low, or Are Your Expenses High?
Our first tip is to take a look at the big picture of both your income and your expenses, all the money that you spend. No matter how much or how little you earn there is never a guarantee of financial wellbeing. A higher income household that has a lot of debt is in fact further behind than a family who takes home much less and has no debt – this family could build up their savings despite lower income. What you spend is just as important as what you earn when it comes to saving money.
Knowing your income might be as simple as looking at your pay cheques, but knowing your expenses is often much trickier. The best way to get started is to record everything that you spend money on, either on paper or in an easy-to-use expense tracker. After a few weeks, you should have enough info to start seeing if there are any places where you could spend less to save more. You might be surprised at how fast this works to boost your savings each month, even at a low income.
Think of Saving Money as Paying Yourself, and Pay Yourself First
You might never have thought about it this way, but most of our income is spent paying other people. Canadians usually pay their rent or mortgage, groceries, household bills, and whatever other costs first before thinking about their savings. But if you worry about everything other than your savings first, then when you finally get around to it, there likely won’t be much money left to save.
Saving money is like paying yourself because the cash stays in your pocket, not someone else’s. Those funds can then be put towards your savings goal, work for you in TFSA and RRSP investments, and help your family in financial emergencies. That’s why you should make paying yourself (i.e. saving money) a top priority. In other words, decide how much money you want to pay yourself each month and do that before, not after, paying your other expenses.
Save Money in Different Bank Accounts
When your income is low, you want to make sure that every dollar counts. Organizing what you earn into different savings accounts helps make sure that everything goes where it should. Another benefit of doing this is that it can make managing your money easier, especially if you automate the process. Here are the steps to do that:
- Have a main account that your pay cheques get deposited into.
- Set up a savings account, or several if you want. For example, you could have separate accounts for your emergency fund, vehicle or home repairs, clothes for your kids, saving for a house, etc. Depending on your bank or credit union, you might have to pay service charges for extra savings accounts. Shop around and find the most cost-effective way to organize what you need.
- Based on your budget, decide how much money you want to put into each savings account each month.
- Set up recurring automatic transfers from your main account into your savings account(s). You can do this from your online banking platform; call your bank if you need help.
After setting this all up, you can forget about it and let your savings accumulate by itself. Then when you do need to tap into one of those accounts, you can do so without worrying about taking away from any of your other savings goals. If having too many accounts is confusing, just use one account and keep track of how much of the money is for each goal using a notebook or spreadsheet. There’s really no wrong way to do it – find what works best for you.
Make the Most of Your Income with a Budget
Our final and most important tip for saving money on low income is to put everything together into a budget. A budget is really nothing more than a plan for how you want to spend your money. It can help you keep your expenses down, focus on paying yourself first, and decide how to organize your bank accounts. Whether your income is low, high, or somewhere in-between, a solid budget will always help you save money and reach your financial goals.
Get Help with Budgeting to Save Money, No Matter Your Income
There’s no secret formula for a low income budget that you need to learn to make an effective money management strategy. Any budget planner can help you get started, including this web-based one. However, if you would like to get expert assistance with making a budget that works with your needs and income, a non-profit credit counselling organization would be happy to guide you through the process. Find help by calling a nearby credit counselling organization in your area. The best part: budgeting help is free!