person in white t-shirt holding money in front of face

How to Save Money on a Low Income

Saving money is hard enough when you have extra income to spare. But when you’re bumping up against trying to save money while struggling to buy groceries, it can be downright impossible.

By virtue of doing freelance work, it’s not a matter of if but when you’ll fall on challenging financial times. You may have clients with long payment cycles that take 1-2 months before you see the money in your bank. On the other hand, you might be in a situation where you lost a high-paying client, and you’re desperately trying to bid on work to find more. Regardless of the circumstance, there are effective ways to ensure you keep saving money through times of abundance and times of low income.

1. Save a Realistic Amount

If you’re bringing in $1,000 a week (and assuming you’re a real person with rent and bills who also enjoys eating), you’ll probably have a savings goal of 10% or less of your income. Realistically, most people spend between 30-40% of their income on housing, 10-20% on transportation, and 10-15% on food, according to the latest Consumer Expenditure Report from the Bureau of Labor Statistics (BLS).

This leaves roughly ~25-40% for everything else, which includes healthcare, entertainment, insurance, and miscellaneous expenses. As you can tell, there’s not much wiggle room for savings, especially if you’re used to living a certain lifestyle. That’s where 10% or less can be a valuable benchmark. If 10% feels out of reach, start with 1% or even $5. Everything counts when you’re starting to save.

2. Pay Yourself First

If you’ve ever waited until the end of the month to save money, you know there’s often nothing left. The concept of paying yourself first isn’t new. In fact, it’s a popular idea in personal finance circles and is the underlying premise of the anti-budget method of cash flow management (which I found to work exceptionally well as a freelancer).

When you pay yourself first, you flip your mindset about savings. It becomes a priority instead of an afterthought. And you’d be surprised how much easier it is to save and manage the rest of your money throughout the month when you’ve already removed savings. Using our $1,000 a week income above, taking $100 off the top for a savings account means you’ll work the rest of your weekly budget from the $900 that remains.

3. Create a Separate Savings Account

When I first built my emergency fund in 2015, I used Bank of America for checking, savings, and credit cards. I would transfer money from checking to savings when I got paid, but sure enough, as the month went on and my funds dwindled, I’d transfer that money right back from my savings into my checking. Because I was seeing it in my account everyday, it felt available for me to use!

My breakthrough happened when I signed up with an online-only bank. At the time, it was called Radius Bank, but it’s since been acquired by LendingClub. I set up a one-way transfer from Bank of America to Radius, and at the beginning of the month, I moved $250. Because I intentionally didn’t set up a transfer back, it felt like there wasn’t any way to get it. I also put my debit card for the online-only account out of sight and mind.

Just this small step led to me being able to save over $20,000 in an emergency fund in only a few years. If I had kept my savings in the same account, I would never have been as successful.

 4. Make Sure You’re Getting a Solid Interest Rate

The rising interest rates we’ve seen in 2023 so far are not great if you’re looking to buy a house or finance another large purchase. But rising rates also mean you get more interest on your money in savings accounts. So if you’re with a traditional bank that’s giving you a fraction of a percent on your savings, it’s time to explore other options. As of writing this in March 2023, I’m getting 4.25% on my emergency fund through LendingClub. And there are plenty of options for high-yield savings accounts (HYSAs) through other banks too.

5. Set a Goal

Once you have systems in place to ensure you’re saving each month, that money is somewhere you won’t be tempted to spend it, and your money is making money for you, you can think about your end goal. I set a goal to have 6-8 months of living expenses stashed away for a rainy day (or a dry spell with client work).

Obviously, to set a goal of saving a certain amount of living expenses, you need to understand how much those expenses are—factor in housing, transportation, food, insurance, and bills. Depending on your lifestyle, you may also want to add some buffer for entertainment so you can continue to do activities you enjoy, even if your income is lacking.

My average monthly expenses were around $3,000. That means I was working toward saving an emergency fund between $18,000 and $24,000. Since I’m someone who feels more comfortable on the upper limit of that range, I decided $25,000 was a perfect goal. Depending on your financial needs, you may choose a goal that’s more or less.

This goal was specific to building an emergency fund, but there are plenty of other great savings goals to explore. For example, you can choose to save toward a new car, moving to a new place, a down payment on a house, or anything else you desire!

The Main Thing About Saving Money on a Low Income

Give yourself grace. When you’re pinching pennies to get by, there will be months when you can’t afford to save. That’s 100% okay. Be reasonable with yourself, and don’t get bent out of shape because you need to pause savings temporarily. Put a plan in place to get back on track and stick to it. The peace of mind you’ll get from having money in the bank is well worth the effort.

Leave a Comment

Your email address will not be published. Required fields are marked *