Are you struggling with saving money? Do you think it’s impossible to save money on a tight budget without feeling deprived??
I felt this way for a long time. And as a result, I was a little late to the bandwagon when it came to saving money. And I regret it big time!
Like I’ve mentioned in some of my other posts, I really wish I had a personal finance education at an early age so that I could have been more prepared for life and have more money saved.
I would’ve known that it is possible to find ways to save money on a tight budget and not feel deprived. You just have to get creative and determine exactly what is most important to you!
Now, I’m here, hoping that I can help you get more prepared for your future! Every dollar saved today, has the potential to earn you more dollars in the long run!
How to Save Money on a Tight Budget
Before I go into how to save money on a tight budget, I highly recommend you read my post on how to budget your money first.
Looking at your spending and creating a budget that works for you is essential in your journey to save money. Without doing this step, you will be taking shots in the dark, maybe saving money here and there, but not really saving enough to make a huge difference in the long run.
You also need to figure out your WHY. WHY do you want to save money? Remembering your WHY will help to keep you motivated! This was a huge takeaway I had from a master class with Caroline Vencil the other day!
She suggested putting your WHY where you will see it all the time, like your desktop on your computer or your phone background. I put “I want to buy a house/investment property” on my desktop. And already, it has stopped me from online shopping out of boredom! Thank you, Caroline!
Tip #1: Research to find more affordable options when it comes to your recurring bills (like your internet, cell phone, cable, etc.).
You most likely will be able to find better prices for all of these services and you should use that to your advantage.
There are so many cable options these days, especially with all the new streaming TV services. Prices are competitive and changing services can save you BIG BUCKS!
However, sometimes it’s not always possible. For example, Time Warner has a monopoly in my area right now for internet. I have no other options to even consider that provide the type of service a normal household needs.
But this is just one service, and you may still be able to convince them to lower your bill, which leads me to Tip # 2…
Tip #2: Call your recurring bills to negotiate a lower rate.
You will be incredibly surprised by how much money you can save with one phone call. In that same workshop with Caroline Vencil, she recommended doing this every 6 months.
Better yet, if you did find a better price after doing your research and you call your current provider to cancel, they may give you an even better offer just to stay!
Caroline mentioned she called ADT to cancel her service because she found a better price with a local company. She was paying around $50 and the better offer she found was for around $40. When she spoke to ADT, they eventually offered her the same service for $19 per month!
That’s over half off, every month, for the exact same service!
Now, I know this tip works as I have done it many times on my own. But I have been lazy lately and not called any of my services in a long time. I live with 3 other people right now so our bills are pretty low as it is, but we could still be saving money, so I’m going to work on this over the next few weeks!
Tip #3: Analyze your rent or mortgage to see if there is any way to save money there.
If you rent, take a look at what is on the market and if there are any options that work for you that cost less. This can save you quite a bit of money over time.
If you aren’t able to move at the moment, maybe you can get a roommate. I’ve lived in my current place for 7 years and have had many different roommates over the years.
I haven’t moved out of this place because it is a great deal for the size and I consistently keep one or both of the other rooms rented out to save money. I live in Los Angeles and I have never paid over $650 for rent. Usually, I pay much lower!
This works as well if you own your home instead of rent. You can easily rent out a room or extra space you have.
Or you can look into refinancing your mortgage. Interest rates are lower than ever right now! Refinancing and getting a lower interest rate can save you thousands over the life of your loan!
That’s money that can be put into savings and given the ability to work for you and grow!
Tip #4: Determine what expenses are most important to you and cut the rest!
Now that we have looked at the larger expenses, let’s look at the smaller expenses. This tip kind of goes along with creating your budget.
When looking at how you spend your money, you have to make a determination of the things that are “must-haves” for you and the things you can live without.
Anything you can live without, cut it out of your spending! There is no need to waste money on something if it is not absolutely essential to you.
I go into detail about the things I stopped spending money on to save money in this post, where I detail how I went about deciding what was important to me and what is not.
Tip #5: Find Ways to Make Extra Money.
There are many different ways you can make extra money. One way is to start a side hustle, like becoming an Instacart Shopper.
Or there are a lot of websites you can use to take surveys and make money.
Always use a cashback website, like Rakuten, when making purchases!
You can also complete a few bank bonuses to make some extra cash. This option is pretty simple; however, you do need to make sure you read the terms of the offers and take into account taxes at the end of the year.
Another idea is to use credit cards to make some extra money. Learn about how to use credit cards properly here. There are many credit cards out there that offer a cash bonus to sign up and/or a high earning rate for cashback.
With all of these options, take that extra money you make and put it in savings to further push you towards your goals!
Tip #6: Pay off high-interest debt to free up more cash to save money on a tight budget.
Typically, in an investment savings account, you can estimate an average return of 7%. If you have any large amount of debt with a higher interest rate than 7% (like credit card debt), then I would suggest you focus on knocking out that debt first.
And once you pay off your debt, that will free up a lot more cash to put in savings. This is like the debt snowball method from Dave Ramsey.
However, if you have debt with an interest rate lower than 7%, like student loans or a mortgage, I would recommend paying at least the minimum to that debt and the rest of the additional funds towards savings.
Both student loans and mortgages are considered by a lot of financial experts as “good debt”. I tend to agree with this as both can help reduce your taxes at the end of the year.
However, I am paying extra towards my student loans to speed up the payoff process. I really want to free up that money to put towards savings even though my interest rate is pretty low. But this is just my goal, always do what works best for you.
The biggest perk to paying off debt and putting that money towards savings is the magic of compound interest….
What is Compound Interest?
In my post about student loans, I detail how interest on your student loans compounds, which makes the amount of money you owe increase significantly over time.
However, compound interest has the opposite effect when you save in either a high-interest savings account or in an investment account.
Basically, your money grows at a quicker rate due to compound interest. When you save money in a High Yield Savings Account, every month it gains interest. Then the next month, it earns interest again: on top of the original amount, last month’s interest, and any new amount you save.
The earlier you get this process started, the more interest you can earn. So, start saving early and as much as possible to take full advantage of this natural phenomenon.
Types of Savings Accounts
So far we have talked about tips on how to save money on a tight budget and why we want to save money (compound interest), so now let’s talk about where we should be saving our money!
A High Yield Savings Account (HYSA) for your Emergency Fund
A High Yield Savings Account is very similar to a regular savings account, but it gains interest every month on the balance in the savings account. One caveat, right now interest rates are very low. While this is great for mortgages and lending, it is not great for savings accounts.
Right now, I use Simple Bank and the interest rate is .06% which is very low. But that’s ok, interest rates will rebound at some point.
I suggest using this type of account for your emergency fund. This should be one of the first things you save for. Your emergency fund should have anywhere from 3-6 months’ worth of expenses which is meant for emergencies like a layoff.
I like to keep this at a separate bank from my normal bank so that it is just enough out of touch to be tempted to dip into it.
Your Employer-Sponsored 401k
At a bare minimum, if your employer offers a 401k and any sort of match, you should save at least the match amount!
For example, your employer may match up to 4% in your 401k. This means that you should save AT LEAST 4% of your income. If you do, then your employer adds 4% to your account as well, which basically doubles your savings!
This is free money that you should not leave on the table. You should think of this as additional compensation from your employer.
When you start your first professional job, it may not seem ideal to have a chunk of money taken out of every paycheck. Trust me, I was not thrilled either! But you are losing money by not taking advantage of this. That’s something I wish I understood earlier.
Now, there are limits to the amount you can save in your 401k every year. For 2020, the limit is $19,500. That is a lot of money, but if you can hit that amount in your 401k each year, you will get years closer to retirement for it!
You can also contribute money to your 401k pre-tax or post-tax. If you contribute your money pre-tax, you will lessen your current taxes in the moment, but pay taxes in the future when you withdraw your money.
If you contribute money post taxes, then you will pay taxes on the money now, and when it comes time to withdraw your money, you will not pay any taxes.
Do some research to see which way is best for you and your situation. And keep in mind that it can change over time!
Individual Retirement Accounts (IRAs)
IRA’s are another type of retirement account you can contribute to. You would open this type of account on your own with a brokerage of your choosing. I use Vanguard for my IRA’s.
There is an annual limit of $6,000 that you can save across all types of IRAs for 2020.
These also have tax advantages like the 401k, and there are several types:
With a traditional IRA, you contribute money to it and select where you want your money to be invested. You should be able to write-off these contributions on your taxes in the year that they are made. However, you will pay taxes when you withdraw money.
A Roth IRA is very similar to a Traditional IRA. However, you will not get a reduction or write-off on your taxes in the year you make the contribution. BUT your money grows tax-free and you do not pay taxes when it is time to withdraw your money.
A sinking fund is basically money you set aside for something specific. You can have multiple of these and they can be for whatever you want!
If you know you want to go on that Disney vacation next year, set up a sinking fund for that. Determine how much money you will need and when you need it by and set aside money every week or month or whenever possible towards this goal!
This is a great idea to use for Christmas too. Save up money towards Christmas in a sinking fund throughout the year so you aren’t hit with the big bill all at once and you are scrambling to pay for it all!
Simple Step-by-Step Strategy to Save Money while on a Tight Budget
- Save in your employer’s 401k up to the match at a MINIMUM.
- Save 3-6 months’ worth of expenses in a High Yield Savings Account like this one with Simple.
- Increase your 401k contributions to a percentage you are comfortable with.
- Set up some Sinking Funds for your goals.
- Open a Traditional IRA or a Roth IRA (or both).
- Save and invest in a non-retirement account if you have maxed out your other accounts.
You don’t have to do all of these steps out the gate. Just work on one at a time and move to the next once you are comfortable!
I believe everyone, everywhere should start saving as soon as they can. Saving money, especially on a tight budget, is super important because compound interest is a magical thing!
If you earn any kind of money, you should save a percentage of it and always keep your goals in mind to stay motivated!
If you enjoyed this post, please share it on Facebook or Pinterest!