How To Budget Money On Low Income: Top Tips To Help You Save

With inflation and the financial independence, retire early (FIRE) movement on the rise, many individuals are curious about how they can live on a low-income budget. From savings tactics to investment strategies, many pre-retirees are looking for ways to accelerate their savings while maintaining a comfortable lifestyle.

Even if you don’t want to retire early, cutting back on your spending can help you achieve your own vision of financial success. Whether you’re in the process of paying off debt, making a humble living or you want to retire early, here are a few tips and tricks for getting by on a low-income budget. 

Analyze Your Current Budget

Before discussing tips for living on a tight budget, you’ll need to evaluate your current spending habits and money management efforts. Start by estimating your monthly take-home pay. The Rocket Money^SM app can track this for you, and can analyze your spending to manage and monitor your budget relative to your take-home pay. Your income may include your salary, proceeds from your side hustle or any other income stream you have. If you don’t have a consistent income stream, do your best to estimate an amount you’re taking home each month.

Next, make a list of your fixed expenses. These expenses will include your mortgage or rent payment, car payment, utility costs, subscription services, and any other fees you pay on a monthly basis.

Finally, make a list of your variable expenses. These expenses could include everything from your stops to Starbucks to shopping trips. It may be best to separate your expenses into categories. Rocket Money can be helpful here too, with the ability to create custom categories unique to you.

After you’ve made a list of your expenses and income, write down your monthly savings and investment amounts. This includes contributions to your 401(k) or IRA account. Including your overall savings and investment percentage into your budget will ensure they’re accounted for when prioritizing your financial goals.

50/30/20 Rule

Once you’ve entered your budget information into a spreadsheet or Rocket Money’s automated budgeting feature, you can then evaluate where your money is actually going. This is your opportunity to adjust and highlight areas you may need to cut back on. A good rule of thumb for determining where your money should go is to implement the 50/30/20 rule. This rule recommends putting 50% of your income toward necessities (housing, food and utilities), 30% toward wants (entertainment and dining out) and the remaining 20% towards your savings goals (contributions toward retirement accounts and an emergency fund).

Once you’ve created a budget, you’ll want to monitor your spending habits and ensure you’re making progress toward your goals.

Monitor Your Credit Score

On top of creating a low-income budget, it’s essential you monitor your credit score to make the most of your money. Particularly if you have a low income and need to rely more heavily on credit, having a higher credit score can get a better interest rate, which creates more savings for you. Ultimately, a good interest rate will reduce what you spend on debts like a mortgage or personal loan.

In addition to saving money on interest, having a good credit score can also help you obtain better terms on loan products. It will likely open better offers on credit cards, insurance discounts and expand your housing options. Even if you have less-than-ideal credit right now, you can work on improving your score over time. Using a credit monitoring tool is a great way to watch and improve your score.

If you don’t know where to start, use the Rocket Money credit monitoring tool to guide you. Using this will help you discover how your credit score and finances work together to ensure you make the best decisions possible.

Step 1: Prioritize Your Financial Goals

Living on a low-income budget can make it a little more challenging to achieve your financial goals all at once. You don’t want to splurge on an item only to discover you no longer have funds for groceries this month. That’s why prioritizing your goals is important. Doing so will allow you to prosper while living on a tight budget.

First, make a list of all your financial goals, then prioritize them and budget accordingly. Consider setting up savings account using Rocket Money to help you save for your goals automatically, based on your spending habits.

Set Up An Emergency Fund

Another thing to consider is establishing an emergency fund. According to the Federal Reserve, almost 40% of Americans would have to either borrow or sell items to be able to afford a $400 emergency expense. Having an emergency fund set aside will give you peace of mind and stop you from going into debt over an emergency expense. If you don’t already have an emergency fund, you should prioritize this financial goal.

Step 2: Minimize Expenses

After you set your financial goals, you can review your entire budget. Take this opportunity to review areas where you can cut back on your spending habits and expenses. Here are a few suggestions for minimizing your expenses:

1. Lower your bills. Rocket Money can identify which bills may be eligible for a lower rate, such as your cable or energy bill, and even do the work of negotiating it for you. After scanning all your expenses, it will identify which bills you may want to lower or cancel with the push of a button.
2. Carpool to work. If you live close to a co-worker who’s willing to carpool to work, you could save money on your car maintenance expenses and gas. You may also build a relationship that didn’t exist before.
3. Request service fee reduction. Many service providers are willing to reduce your service bill if you’ve been a loyal customer. For example, you may want to contact your cell phone service provider to see if they have options that are less expensive than your current plan. The number of companies willing to lower your bill is surprising.
4. Reduce your energy bill costs. In addition to getting a better deal with your energy company, there are plenty of other ways to reduce your energy costs. All you have to do is get creative. You can do this by installing CFL or LED lights around your home or installing a programmable thermostat. Keep in mind that little adjustments go a long way.
5. Cancel subscription services you no longer use. Do you have both a Spotify and Pandora subscription? If you don’t think you need both, it may be wise to cancel one. Rocket Money will even cancel them for you, identifying any subscriptions you have based on past transactions.
6. Cook most of your meals at home. Cooking your meals at home not only saves you money but can also help you maintain a healthy lifestyle. The more you plan, the better you can budget for your grocery bill.

Step 3: Create Positive Spending Habits

Creating positive spending habits can help you survive on a low-income budget. When you spend your money wisely, it can go a lot further. Similarly, breaking your bad spending habits will help you prosper even if you don’t make that much money. For example, if you eat out five days a week and spend $10 on every lunch, you'll spend $2,600 a year minimum on eating out. If you’re living on a low income, this can take a hefty chunk out of your budget.

Instead, you may want to consider packing your lunches. This will save you money while maintaining a healthy lifestyle. Here are some other spending habits you may want to adopt:

1. Remove your credit card information from your favorite retail sites. Retailers save your payment information so it’s easier for you to check out and spend money. Removing your information will give you time to contemplate each purchase before you overspend.
2. Utilize the 24- or 48-hour rule. Try waiting at least a day or two before you make an unplanned purchase. Most of the time you’ll decide you don’t even want the item.
3. Compare item prices before you make a purchase. With the abundance of comparison sites available, it’s wise to compare item prices before you buy anything. Comparing prices will find you the best deal for the item you’re seeking.
4. Avoid shopping out of boredom. Some consumers shop because they’re bored. Instead, try going for a walk, reading a book or catching up with an old friend.
5. Use shopping apps to find coupons and deals. Using apps like Ibotta and SnipSnap can save you money on the items you buy on a regular basis. After all, who doesn’t want to save more while putting in minimal effort?

Learning how to save money on a low-income budget doesn’t have to feel restrictive. Adopting positive spending habits can let you live a life of financial freedom and maximize the money you have at your fingertips.

Additional Tips For Living On A Low-Income Budget

While living on a tight budget isn’t necessarily easy, there are plenty of ways you can thrive while living on a low income. Here are a few other tips and tricks for surviving on a low income:

• Look for free and low-cost activities. Spending time with your friends and family doesn’t have to cost an arm and a leg. Look for free and low-cost activities in your community that you can do with your loved ones.
• Ask for a raise. While asking for a raise may be stressful, it can boost your income over time. If you want to learn how to ask for a raise, practice negotiating with friends and family to help prepare you for the meeting with your supervisor. Make sure to prepare a summary of reasons you might deserve a raise, using as much data as possible, including performance targets and/or market research, if applicable. Videos and other useful tips can be found online when researching how to ask for a raise.
• Start a side hustle. While you’re trying to cut back on your spending, you may want to also consider launching a side hustle if you have a hidden passion or talent. For example, you may choose to tutor on the side for extra money if you enjoy working with kids.
• Replace costly habits with inexpensive ones. Living on a tight budget doesn’t mean sacrificing the things you love. There are ways to indulge without overspending. If you enjoy getting your nails done, take the time to learn how to do them yourself. If you like to travel, consider a staycation or maybe a trip closer to home. Allow yourself to still participate in your favorite activities in ways that meet your fiscal goals.
• Plan sequenced reward opportunities. While long-term goals are important, don’t forget to set short-term goals too. When you’ve achieved a short-term goal, allow yourself to celebrate your victory in a responsible manner. Then, return to working toward your next goal. These small milestones will make the stretch between your larger achievements seem smaller and more achievable.
• Create accountability. It’s more than likely you’re not the only member of your friend group who’s in need of some budget resurrection. Talk to your friends about your goals and the ways you hope to achieve them. Ask them to keep you accountable or join you in your quest for financial security. When you have a strong support system, it’ll allow you to persevere through tough times.
• Seek out low-cost alternatives to your hobbies. If you love to read, consider visiting your local library instead of purchasing the latest bestseller. If you’re a member of a gym, look into your local government’s recreation facilities and compare prices. Much like replacing costly habits, finding ways to participate in your hobbies inexpensively is a great way to thrive while reducing your spending.

The Bottom Line: There’s Plenty Of Ways To Live On A Low Income Budget

It’s not easy to live on a tight budget. It requires individuals to make sacrifices, forgo opportunities and keep long-term goals in mind at all times. Seeking outside help and following the above tips for living on a tight budget will provide you with great reward – living comfortably in retirement.

There’s nothing you should prioritize more than providing a secure future for you and your family. The stress, worry and heartache you’ll save yourself will be worth it. Choose what you need long term as opposed to what you want short term, and reap the benefits of a low-income lifestyle in exchange for a secure future.

With a quick breakdown of your finances and spending, our Rocket Money app can put your savings on autopilot, even with a smaller budget.