Vault’s Viewpoint
- It can be difficult to save money without sacrificing your quality of life, but there are some strategies you can employ.
- The first step is tracking your spending and understanding where you spend the most money.
- You can reduce bills like utilities and insurance premiums with a little research and a few phone calls.
How To Save Money On a Tight Budget
A recent Capital One CreditWise survey found that 73% of Americans said finances are a major source of stress. Working on a tight budget, whether due to job loss, rising cost of living or a medical emergency, only adds to this stress. Finding new sources of income is one way to reduce that stress, but managing your current income and cutting expenses can be just as effective.
The good news is there are plenty of ways to save money in your day-to-day life, many of which don’t require you to sacrifice your standard of living. Here are our tips for saving money even when your budget is stretched.
1. Carefully Track Spending
If you have more money going out than coming in, you need to make cuts. Rather than arbitrarily cutting back on food or entertainment spending, however, track and categorize your purchases for a month to get a more accurate idea of exactly where your money is going. You might be spending more than you realize in a particular category.
A common budgeting guideline is the 50/30/20 rule, where 50% of your income goes to needs—like rent payments, groceries or utility bills—30% goes to wants like travel or entertainment and 20% goes to savings and investments. If you find after monthly tracking that you’re spending more than 30% in the wants category, for instance, you can make a plan to cut down on extraneous spending.
If your needs are taking up more than 50% of your budget, however, you might have to reallocate money from savings or fun purchases temporarily to cover the cost, or even seek ways to reduce those expenditures (more on this below).
2. Negotiate With Utility Companies
Monthly bills for electricity, gas and other utilities can cost hundreds of dollars, eating up a big portion of your budget. While you can cut costs slightly by reducing electricity usage with energy-efficient lights or water-saving strategies, you can also lower your utility bills by calling your providers and negotiating the cost.
You might qualify for a lower rate, special discount or rebate depending on your situation and where you live. Even if you don’t qualify for a lower bill, your company may be willing to work with you on a payment plan that works better with your budget so you don’t default on payments.
Additionally, seek out federal and state-level assistance programs for utility bills.
3. Don’t Skip Bill Payments
If you don’t have enough money to pay for your bills and other purchases, it can be tempting to leave a balance on your credit card unpaid to buy things you want. However, this can cost you more in the long run than it saves you, due to high credit interest rates and the impact on your credit score.
You should always prioritize payments on high-interest debts, such as credit cards, because the additional costs can make it more difficult to get out of a tight financial spot. But even lower-interest bills shouldn’t go unpaid if you can avoid it. A defaulted payment significantly hurts your credit score, making it more difficult to qualify for quality housing, loans and even employment.
4. Shop Around for Lower Insurance Premiums
Insurance costs can be high, so shop around regularly to ensure you still have the best rate. Keep a regular eye on insurance premiums (whether car insurance, pet insurance or health insurance), and don’t be afraid to switch providers if you find a lower cost. You also might be able to use the research to negotiate a better deal with your current insurance provider.
5. Take Inventory of Subscriptions
Monthly subscription services often feel like they are saving us money because you pay a smaller amount regularly rather than having to part with a larger balance upfront. But the cost of multiple subscriptions can add up quickly. And with so many services operating on a subscription model, you might even be paying a monthly bill for one you don’t use anymore.
When your budget is tight, it’s a good time to catalog all your active subscriptions and add up the cost. See if there are any you don’t use and cut those first. Subscription tracker services can help you identify all of these payments coming from your accounts.
6. Ask for Reduced Interest Rates
Did you know you can get a lower interest rate simply by asking your lender? If you have debt that’s growing every day thanks to interest, you can call your lender and ask for a reduced APR. Often, they’re willing to work with you to prevent a defaulted payment, especially if you have a history of paying bills on time.
7. Take Advantage of Credit Card Rewards
It’s true that you should avoid using a credit card as a crutch when your budget is tight. Carrying even a modest balance can result in large interest charges and a balance that takes years to pay down. But, used strategically, credit cards can actually be a useful penny-pinching tool.
If you have a rewards credit card, you can earn cash back or points on purchases you already have to make—like groceries or gas. Some cards offer benefits like statement credits for subscription services too, which can cut at least one cost out of your budget.
8. Sell Stuff You No Longer Need
Clutter in your home is not only annoying; it could also be an untapped source of funds. Consider listing old furniture, clothes, electronics and other items on resale services like Facebook Marketplace, Mercari or eBay. You’ll get extra space plus a little more money to pad your checking account.
Frequently Asked Questions
How Do I Stop Living Paycheck to Paycheck?
Living paycheck-to-paycheck is an unfortunate reality for many Americans. To break the cycle, you’ll need to build up your savings by increasing your income or decreasing your expenses. When money is tight, putting anything in savings can feel difficult, but even a few dollars here and there can help you work towards that goal. Putting that money in a high-yield savings account will also ensure you earn a good interest rate that will help your balance grow faster.
How Can I Save Money On a Low-Income Budget?
With the cost of living so high, trying to survive on a low income is hard. In addition to money-saving tips, don’t be afraid to take advantage of assistance programs, both locally and at the federal level. This might include signing up for the Supplemental Nutrition Assistance Program (SNAP) to help pay for groceries or Medicaid for health care costs.
What Is Zero-Cost Budgeting?
Zero-cost budgeting is a strategy that involves keeping a critical eye on your spending every month in order to design your budget for the following month. You’ll go through all of your expenditures and ensure they were justified, making cuts to the plan for the upcoming period where they were not. It can be a useful tool for identifying extraneous spending and focusing on your most important purchases.
