Saving a portion of your income helps you build wealth and plan for the future. It is essential for reaching important financial goals like saving a deposit for a home or new car.
But how do you save money if you are living on a low income? When it is a struggle to simply pay the bills, it may seem impossible to put money away for the future. There are actually several clever techniques that can be used to help you save money on while living on a low income. This article will share the best.
Research your entitlements
There are various government entitlements available to people living on low incomes in the United Kingdom. It’s important to research these entitlements to ensure you are getting all of the help that is available.
There is a useful savings assistance programme available, called Help to Save. It is a savings account where the government will contribute 50p for every £1 you save over a period of 4 years. Participants can claim this bonus on up to £50 of savings each calendar month. There are also two tax-free bonuses available during the 4 year period.
This programme is available to people who are:
- Receiving Working Tax Credit
- Entitled to Working Tax Credit and receiving Child Tax Credit
- Claiming Universal Credit and your household earned £542.88 or more from paid work in your last monthly assessment period
Reduce high-interest debt immediately
Many people living on a low income also have significant debts. The interest payments on these debts make living on a low income even more difficult. The best approach to dealing with these kinds of debts is to eliminate the debts with the highest interest payments first.
Let’s say you have a credit card debt of £1,000 which is attracting interest of 20%, and an old pay day loan of £500 with a staggeringly high interest rate of 400% (common in the UK) — pay the minimum amount on the credit card and pay off the pay day loan as aggressively as possible. The interest that you are paying on debt is “dead money” that could be used elsewhere.
If you have many different debts with a similar interest rate, you could also use the snowball method. The concept is simple — concentrate on paying off your smallest debts first. As you rid yourself of these small debts, your finances become much simpler to manage and you will become motivated by successfully paying off a debt.
Find a great savings account
Not all savings accounts are the same. You will find that some banks have monthly fees on their savings accounts while others offer lower interest rates than the market average. Look for a savings account that:
- Does not have any account keeping fees
- Does not require you to deposit a minimum amount each month
- Has no overdrawn fees
- Provides you with free monthly statements and free e-banking
- Provides a competitive interest rate
Analyse where your money goes
Next, create a list of everything that you spend money on. Be realistic about how much you spend on incidental purchases like coffee and fast food — these costs can really add up over the course of a year. Knowing exactly where your money is going will help you make fiscal adjustments that are effective.
Find expenses that can be reduced
When you are living on a low income, you have to make some hard decisions about how you spend your money. Look closely at your current expenditure to identify ways that you can cut back. There are several approaches that work well when cutting down on expenses, including:
Cutting down on big expenses
Many people simply assume that they are stuck with certain kinds of bills. This is particularly true of big expenses like rent, car repayments, mortgage repayments and so on. But you can reduce or eliminate these costs if you wish. Consider moving to a cheaper neighbourhood or downsizing your home. Refinance your mortgage for a better rate. You could even sell your car and use public transport or a bike instead. You can make large savings by reducing the largest expenses in your life.
Cutting back on lifestyle expenses
Consider cutting back on entertainment expenses like streaming services (Netflix, Spotify), going to the movies, eating out, buying alcohol and so on.
Look for free alternatives to these activities, like exercise, playing board games, playing sports, or spending more time with friends.
Instead of buying books, join the local library. Instead of buying furniture, make your own from scrap timber.
You should also identify any expensive lifestyle habits that you have, like buying a coffee and donut on the way to work each day. Brewing your coffee at home could save you hundreds of pounds every year.
Buy food in bulk
One of the best ways to reduce your food bill is to buy non-perishable foods in bulk when they are on special. Cooking in bulk and freezing the meals can also dramatically cut the cost of your food. For more information on meal preparation, read this guide.
Look for ways to cut bills
Explore options for cutting your utility bills including changing to a cheaper provider, asking for loyalty discounts, cutting your energy/water consumption, and so on.
Set up a budget
Create a budget which factors in any new cost-cutting measures you are going to take. Assess how much money you should have left over at the end of each month and how close it is to your savings goals.
Get a side job
If you are still struggling to save enough money each month, consider taking on a little more work. You may be able to monetise one of your hobbies or perform odd jobs for people in your local neighbourhood. There are also plenty of opportunities for additional work in the gig economy, as a food delivery person or driver. If you save everything you earn from this new side gig, it could amount to thousands of pounds over the course of a year.