If you're earning national minimum wage while covering all your living expenses, there is no doubt this can be difficult. Cost of living is making what was considered ok job now jobs that cannot provide a suitable income to live on making saving money can feel impossible.
Find a higher paying job! But, may need more qualifications that's more money for university, or due to expensive childcare costs we simply cannot afford childcare so have to work around young children.
Get multiple jobs! Personally I had two jobs and my husband had a job and still between us we were still eligible for Universal Credit as we were still classed as low income.
Pay for childcare! Use family! Paying for childcare would mean one income would be almost entirely spent on childcare! Family? They have their own families to accommodate for, not physically capable to look after young children, your estranged from family or family live too far away and more.
There are so many factors to consider before judging anyone's income or spending especially during the cost of living. However, to make savings consider this, your spending will need to be significantly reduced. You will need to understand how to put every earned pound to work rather than on unnecessary purchases.
Below are a few tips that low-income families can use to help them save more money to add stability to their life.
Think About Your Financial Goals
A great way to reach a goal is to define it. Maybe, you earn minimum wage and most of your income goes toward monthly bills; you need a plan to maximize your residual income. Write down your goal and start from there. This can include:
Short-term goals:
- Paying off credit card debt
- Building an emergency fund or separate savings account
- Reducing any spending
Long-term goals:
- Saving for a down payment for a home
- Becoming debt free
So, how do you do this?
Maybe your goal is to save for a 3-month emergency fund because your income is so low that you worry about covering emergencies in the future.
1.Calculate how much your monthly expenses are.
This only includes the essential bills you pay every month, such as rent/mortgage, utilities, groceries, phone bills, and insurance. You don't want to include any miscellaneous expenses because the point here is to cut your costs as much as possible.
2. Calculate
1. Eliminate or Reduce All Unnecessary Spending
Many people believe it's too difficult to cut expenses; therefore, they don't even bother. While others believe there is nothing left to cut. While this is true for a fair few, it's not the reality for most. Additionally, we often associate reduced spending with an unpleasant way of living life. This is a cynical thought process that keeps many people in poverty. Eliminating unnecessary spending allows you to save for the future and your retirement, and conditions you to look at money more healthily.
To eliminate spending, it's best to start by tracking your money. Print off the last 60 days of bank statements and credit card statements. Aside from your housing, utility, gas, and grocery bills, calculate how much money you spend on everything else. You might catch yourself saying, "Well, I needed that," or "That was a necessity." Ask yourself, "If I didn't buy it, would there have been a consequence?" This will help you distinguish between a need and a want.
You will want to apply an effective strategy to help you monitor these expenses. The cash stuffing system is a practical and viable solution. It allows you to divide your cash into envelopes while ensuring you are spending the allotted amount. Additionally, for all the expenses you want to eliminate entirely, you won’t designate an envelope, making it easier to ensure these categories are eliminated.
To maximize your savings, you should limit your categories to essential expenses only, including;
- Mortgage/rent
- Utilities
- Gas
- Groceries
- Insurance
- Car Payment/transportation
The list intentionally leaves out all other spending categories because, remember, it's designed to limit spending. By this point, you may have concluded that your residual income after expenses is still relatively so you want to go leaner, but there is nothing left to eliminate. Below are a few options to cut additional expenses.
2. Lower Your Essential Expenses
Lowering essential expenses may seem like a daunting task, and that's because it is, but it's worth it. To do this, you will need to spend time calling service providers for your utilities, cell phone, and internet bills to negotiate cheaper fees. You might be surprised to learn that you can save quite a bit of money each month simply by negotiating presumably overpriced plan rates. The average Brit spends £147.38 each month on their cell phone, internet, and streaming bills. Streaming service alone is £39.96, which is an absolutely unnecessary bill.
Another option to lower your essential expenses is to rent out space if you have any. While this isn't the most ideal option for most people, it could be worth it if you perform the proper background checks on your potential renter. This isn't an option for all people, but if it is, collecting rent can pay down your debts quicker and help you save more money.
3. Consolidate Your Debt
Consolidating your debt is an excellent way to reduce your monthly expenses and should not be overlooked. The average Brits spends £1,233 each month on debt payments alone. That is an astronomical amount of money, especially for people living on minimum wage.
If this is the reality for you, take the time to address it as soon as possible. Call your credit card provider to negotiate lower interest rates that you might qualify for. If no changes can be made, shop around for competitors that offer balance transfers with low-interest rates. By consolidating your debt onto one account with a low-interest rate, you're reducing your monthly interest payments while streamlining all your bills, making it manageable.
Doing this can help you save a few hundred dollars each month, depending on your total debt amount. The added savings will expedite your goal and help you save for new goals as well. Additionally, putting a freeze on your credit cards will also help you reduce your spending and prevent you from accumulating further debt.
4. Cancel Vehicle Payments
Financing a vehicle is often necessary if you don't have the savings to pay for one upfront. But that doesn't mean overpriced car payments are okay if you're financial situation is unfavourable. Keep in mind, the average Brit spends £598 on monthly payments and insurance each month. This is simply unreasonable for so many households. If your monthly income is £1800 on average, this is 33% of it.
Cancelling vehicle payments can be tricky because it entails you selling your car back to the dealer, hoping they will repurchase it for the value of your outstanding loan. If they offer a lesser amount, you will be left with a lien on the vehicle, which must be paid off. In this case, determine what the monthly payments of the lien will be. If it's much less than the vehicle payments, you might want to consider this option. Alternatively, you can sell it privately at a selling price that would cover the loan balance.
By selling your vehicle, your means of transportation will be public transit until you can save enough to buy a used vehicle. It will be a difficult transition, but the money you save will make a significant difference in your life. Vehicles are a necessity in some cases, but they should never be at the expense of your financial freedom.
5. Get Started Now
Struggling to get ahead financially is one of the most significant stressors in life. Still, it can be improved despite a low level of income. When we thoroughly analyse our spending habits, we quickly realize that we have an income problem in addition to a spending problem. So, there's no better time to initiate these changes than right now!
To recap, the most important thing is to have a goal because without one, you're working toward nothing, and change doesn't happen. Overspending is often the culprit that prevents you from saving more money and paying down debt. With an appropriate spending plan, debt management plan, and control over your spending, you can change your life, even while living on minimum wage.