What are the best tips for living comfortably on a low income?
Living a low income lifestyle means budgeting your money and keeping expenses low. You should avoid debt which prevents you from living comfortably. As your situation improves, use your income for investing and improving your life.
How would you finally like to have control over your money? Wouldn’t it be nice to not stress so much about money, even without a large salary.
Yes, you can live a comfortable lifestyle without making a six figure salary.
Luckily for you, I’m going to show you steps to take to improve your lifestyle. With enough effort, you can save for your financial priorities while being comfortable.
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What is classified as low income?
According to PewResearch, low income families have a household income of less than $48,500.Middle class families had incomes ranging from $48,500 to $145,500.Upper-income families had incomes in excess of $145,500.
Therefore, this article will focus on helping families with an income of $50,000 per year or less. However, these strategies are something that can help any family financially.
Keep in mind, location greatly affects what should be considered low-income. For example, someone living in Arkansas may do well on $50,000 per year. The cost of living in Arkansas is relatively low.
Now consider someone living in New York City. $50,000 per year does not get you very far living in a big city. Generally, incomes are much higher in larger cities to compensate. However, low income jobs still exist, primarily to help support higher income job positions.
An example would be a barista for Starbucks in Seattle.
Your barista only makes 20 to $30,000 per year while living in an expensive city. Seattle’s average household income is well over $80,000 per year. Your barista is solely there to support the high-income earners at the city.
Believe it or not, we can transition you from a low income earner to a high-income. This process usually takes course over years. We all start somewhere near the bottom, but we all have the ability to make it to the top.Click to Tweet! Please Share!Click To Tweet
How do you live comfortably on a low income?
You can live comfortably on a low income by taking control of your money. First, you need to reduce your expenses and track your spending. Change the habits that are keeping you poor and work on growing your income.
Just because you have a low income doesn’t mean that you can’t enjoy life. You simply need to have a plan for your expenses. Identify where you want to spend your money, while saving for what’s important.
Budget your money
Budgeting is the first step towards living comfortably on any income. A budget is your plan for your money. Without a budget, you are destined to overspend which will keep you poor.
It is really easy to spend money. You would spend nearly $4,000 by spending an extra $10 per day. At a $40,000 per year income, $10 per day in spending is nearly 10% of your income.
It is never the large purchases that catch us off-guard. Usually, small purchases add up to large amounts. For a lot of people, it’s coffee in the morning, a soda in the afternoon, and dinner on the way home.
A budget is what will allow you to keep on track with your spending. When you budget regularly, you know when you’re overspending.
What is really cool about budgeting, is that you will keep on track financially. For example, let’s say you need $3,000 by the end of the year. You can reference your budgeting spreadsheet and see that you are setting aside $250 per month.
I budget to stay on track for retirement. I have a child that I would like to put through college. There are many life events that I will need to plan my money for.
Knowing your goals and planning for them is the first step. Assuming your salary is $50,000 per year, you will make $500,000 in 10 years. Imagine, going through 10 years of your life and still not having any savings.
Find low-cost entertainment
Low-cost entertainment is the key for staying within your budget. There are tons of activities in the world that are fun, but cost money. Keeping yourself busy for free or cheap will allow you to save even more money.
You can also find low-cost entertainment options for the purpose of spending your money elsewhere.
Maybe, you really want to take a vacation this year. Vacations can be really expensive. What if you are currently spending $40 per week on entertainment?
What if you replace your $40 per week entertainment with free options. You would then save just over $2,000 in a year. Now, you would have $2,000 to spend on a vacation.
I don’t expect you to replace all of your entertainment. However, it would be a good idea for you to find cheaper alternatives.
Personally, I love playing video games. I can buy a video game for $50. That same video game can provide me months if not years worth of entertainment.
I understand that video games aren’t everyone’s cup of tea. what sounds fun to you that you can enjoy for free or cheap with your family. For example, what about nature hikes, drawing, sports leagues, or starting a side hustle?
Set limits on eating out
You should also try to limit the amount of times you eat out per week. Eating out is one of the many ways we waste our money. It is fun and easy to eat out, but it is killing your finances.
Eating out is one of my struggles when it comes to finances. I love the convenience and how tasty the food can be. However, when I look at my budget I know exactly where my money is going.
I feel guilty every time I budget. The food was good, but now I have nothing to show for it. I am no closer to retirement or buying something nice by eating Taco Bell.
As a general rule, I avoid eating out more than once per week. Some days are easier than others, but it’s an important rule to follow.
If you do decide to eat out, that’s okay. you need to do whatever makes sense for your family. However, maybe avoid items that are costing extra. Forget the tableside guacamole, sodas and alcohols,
Reduce Housing, Transportation, and Utility expenses
The three biggest expenses you will face are housing, transportation, and utilities. The more you can look at these expenses, the better you will be. Simply put, these are a nightmare expense for anybody.
Housing is the largest expense for your budget. It doesn’t matter if you are paying rent or a mortgage. In February 2020, the average rent in America was $1,463.
Therefore, the average American was paying nearly $18,000 in rent each year. Low-income families are only making at best $48,000 per year. $18,000 represents 38% or worse of a low income families expenses.
I urge you to evaluate your rent situation and improve it.
The average American also spent around $800 per month on Transportation. Generally, this is in the form of gas, insurance, and car payments.
Therefore, Americans are spending nearly $10,000 per year on vehicle related expenses. You can avoid the majority of these expenses by trying to avoid car payment.
Americans are also spending $2,000 per year on utilities.It makes me want to flip the light switches off right now.
From these numbers, you can see Americans stand $30,000 per year on average. Some low-income families only make $30,000 per year.
Focus on changing your habits
Your habits are going to determine whether or not you change your finances. You need to limit bad habits that are costing you money, like smoking or alcohol. Ideally, you are changing your habits to focus on saving money.
Changing habits is one of the most difficult things people do or don’t do. You can read about personal finance until you’re blue in the face. However, if you don’t take the action then nothing will ever change.
The world is full of addicting substances. We all know that the TV is addicting and so is alcohol and cigarettes. We all know that exercise and a healthy diet can help us, but turning off Netflix isn’t easy.
However, if you want to change your financial situation bad enough, you will. At some point, successful people had their breaking point. At some point, these people said, “I’m going to change my situation.”
If you want to turn your finances around, get serious. Stop wasting your money on things you don’t need. Start budgeting and learning more about 401ks, investing, and increasing income.
Get rid of debt
Debt is designed to keep you poor. The borrower will always be a slave to the lender. Obviously, we need some debt for big purchases like homes. However, the more you take on debt, the harder it will be to crawl out.
A lot of low-income families make the mistake of purchasing luxury items. New cars and boats may look cool, but they’re bad for your finances.
Most people wouldn’t recognize a millionaire. When a person reaches millionaire status, not a whole lot has changed about them. Usually, they are driving the same cars and wearing the same clothes.
People get really passionate about cars. I understand you want to live comfortably. However, don’t fall into the trap of buying a new car if you can avoid it.
When you try and find a new car, try to find something that is around five years old. Usually, five year old cars won’t have the maintenance issues, but they still feel new.
The fastest way to pay off debt is by paying off the highest interest rate first. Pay off your high interest debt, like credit cards, first. Then, move towards your second highest interest rate.
Prepare for emergencies
Emergencies are bound to happen when you are living life. Unfortunately, there is no way around a financial mishap. Your car is going to break down and eventually, someone is going to get sick.
Most people do not plan for emergencies. Generally, this means that people are using credit cards to pay for emergencies. Unfortunately, most people cannot pay off their credit card balance each month.
Instead, work towards building an emergency fund. An emergency fund is money set aside for emergencies.
To start, set aside $1,000 for an emergency. $1,000 is usually enough to cover minor mishaps. Once your debt is paid off, work towards building 3 to 6 months worth of expenses. Three to six months worth of expenses is usually enough time to find another job if you lose your job.
You should always keep your emergency fund somewhere that is accessible. Usually, it is not a good idea to invest your emergency fund in the stock market. Typically, the stock market crashes during times when job losses are happening.
Personally, I keep my emergency fund in a money market account. A money market account and slightly better returns than your savings or checking account. Should I ever need the money, I can access it within a few days.
Sleep on it – The 30 day rule
Most major expenses can be avoided by simply sleeping on it. Most people are making impulse purchases when they see something they like. Instead, avoid making a purchase right away and sleep on it.
The 30-day rule simply states to hold off on a purchase for 30 days. At the end of the 30-day period, buy the item if you still want it.
Obviously, you should still have the money for it. You should consult your budget to make sure that your financial goals are still being met. However, living comfortably on a low income does allow for the occasional splurge.
Thirty days it’s only a guideline. You can reduce the timeline if you feel necessary. Some people sleep on it for 24 hours, while others spend seven days.
Shop for discounts
Try to never pay full price when it is time to make a purchase. Any deal you can come up with is money in your pocket. Feel free to shop around, look at deal websites, and see if you can find any discount gift cards.
For example, you may go to giftcardgranny.com and find a discounted gift card. People are selling slightly used or new gift cards that they don’t want. These gift cards are often sold at a discount.
You can use these gift cards to receive an instant discount. For example, you might find a Lowe’s gift card for 10% off. Therefore, you are getting a $50 gift card for $45.
Next, you might go to Rakuten for shopping online discounts. Rakuten is a website which gives you cash back on your purchases at well-known retailers.
Simply sign into your Rakuten account and find the store you wish to shop at. Rakuten will track your cash back and send you the money via PayPal.Click to Tweet! Please Share!Click To Tweet
How can I save my monthly income?
You can save your monthly income by reducing your expenses, automating savings, and growing your income. As your income grows, you should avoid lifestyle changes which increases your expenses.
The more you earn while avoiding lifestyle inflation, the better you will be. Let’s take a look at how you can break free from living paycheck-to-paycheck.
Reduce your expenses
The first step is to reduce your expenses. Hopefully by now, you’ve created yourself a budget. You should know exactly where your money is going each month.
Now be honest with yourself. Where are you spending extra money that you probably shouldn’t be?
Maybe you are spending too much on food every month. What steps do you need to take in order to reduce your food spending?
Really dive down into your budget. Can you find any source of excessive spending that needs to be cut back on?
Automating your savings is the best hack for living comfortably. Some people forgo the budgeting if they prioritize saving and investing. Automatic transfers make the process easy, so you don’t even have to think about it.
For example, your 401k and Company match is usually taken out of your paycheck. You can simply set a percentage of your income to be invested each month. Whatever you get a raise, the amount grows too.
After using a retirement calculator, you may decide that you are saving enough money for retirement. Some people will then spend their money freely knowing retirement is taken care of.
Generally, I still recommend you budget even if you automated your savings. Budgeting is still a good practice and lets you have complete control of your money.
Focus on growing your income
Budgeting and reducing your expenses will only take you so far. You can only cut so many expenses. After all, you still need to go grocery shopping and pay your rent.
Yes, you could find a cheaper place to rent. However, there becomes a floor where you cannot reduce any further.
If you truly want to build wealth, then you need to focus on growing your income. There are many different ways to grow your income.
Most of you will be content by working a nine-to-five job. However, some jobs are just designed to not pay you more than you need. Always be on the lookout for higher-paying jobs.
Some of the best increases in my income have come by swapping jobs. The company you are working for does not care about your situation. The only way to advance is often through finding a different company to work for.
You can also start your own side hustle. Starting your own side gig takes a lot of work, but it can be very rewarding.
When you do get paid, take a look at what you are buying. Buying dividend stocks or ETFs gives you an immediate raise. If I put $10,000 into a dividend stock paying a yield of 4%, then I would earn $400 per year by holding it.
Avoid lifestyle creep
Lifestyle creep is one of the most dangerous things you can do to your finances. Yes, we all want to spend money on things. However, people have a tendency to spend what they earn.
For example, maybe your boss gave you a 5% raise this year. Therefore, someone making $50,000 per year would now make $52,500 per year. Most people would spend that extra $2,500.
What most people don’t understand is the power of leverage. you can now use that extra $2,500 per year to invest in the stock market. Your money then begins to work for you.
For some, earning an extra $2,500 doesn’t seem like much. However, investing your money takes advantage of compound interest.
Someone who invests that money into the stock market will see that money earning money. At first, you are only earning a few dollars when you don’t have much. However, earning 10% on $100,000 is $10,000.
Eventually, you’ll be at $200,000 earning $20,000 per year. That $20,000 helps you reach $300,000 much quicker. Once you have reached $1000000, 10% return on investment earns you $100,000.Click to Tweet! Please Share!Click To Tweet
Summary: Tips for living comfortably on a low income
As you can see, there are many ways to improve your lifestyle on a low income. Low income for the purpose of this article is defined as $48,500 per year. The first thing you should focus on is controlling your money.
You need to start by budgeting. A budget is your plan for your money. Without a budget, you will not know where your money is going.
A budget will help you identify where you are overspending. Ideally, you can find ways to reduce your expenses. The biggest 3 expenses are housing, transportation, and utilities.
You can only reduce your expenses so much. There will come a point where you need to focus on growing your income. You can grow your income through job changes, side hustles, and buying things like dividend stocks.
Automating your savings can help keep you on track financially. Automatic transfers allow you to set saving increments to be automatically invested or saved. For some, once they have automatic savings down they feel comfortable living life just a little bit more.
The biggest thing to consider is lifestyle inflation. If you ever get a pay increase, use it wisely. Look towards investing rather than buying something to take up garage space.