How to Save Money When You Are Broke
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You hear it a lot: You need an emergency fund. You need retirement savings. You have to save for your child’s college. And on it goes. But what do you do when you don’t have extra cash to stash away? Surprisingly, there are ways to save money even when you live on a tight budget.
In this article
First steps
Before I give you ways to save, there are a couple of steps you need to take to be ready. First, you'll need to know how much money you have coming and going, and secondly, you'll need a savings account to store your extra money.
Start by budgeting your money
The best way to determine how much you can save each month is by knowing how much money you are bringing in and where you are spending it. This is crucial to determining if you have any extra money and how much. It also can highlight your spending habits so you can see where to cut expenses. To create your budget, follow these steps:
- Take a sheet of paper, and write down all your income. This includes your paycheck (the amount you actually bring home), any spousal or child support, or other income.
- Next, write down all of your expenses. This includes living expenses such as rent or mortgage, utilities, cell phone bills, groceries, and gas, as well as credit card payments, installment loans such as car or student loans, and other regular expenses. Total that amount.
- Subtract your expenses from your total income. This is your discretionary income.
Now that you know where your money is going, you can see what you have available to start saving as well as pinpoint areas where you can trim expenses to boost your savings.
Open a savings account
Whether it’s $5, $10, or more — or even less — the goal is to start saving. And you want a good place to park that money where you can get it if you really need it. A savings account is a better option than a checking account because you’re less likely to touch it. But you should skip the traditional savings bank account. Instead, look for a high-yield interest savings account. These often have a higher interest rate than traditional savings accounts.
When searching for a high-yield savings account, look for one that does not require a minimum amount to open the account, does not charge maintenance fees, and does not have a minimum balance requirement. There are many options with online banks that can be set up in minutes. The account also may come with a debit or ATM card so you can access funds when needed. Some accounts also may require you to link a checking account, so pay close attention to the terms to get the account that best fits your financial situation.
Once your savings account is set up, start depositing a set amount each week. Choose an amount you can comfortably do without, even if it’s just $5. The key is to commit to making a deposit into your savings every week. When you are able, you can increase this amount.
How to save money
It may seem impossible, but there are ways to save more money than you might think. With the right money management, you can trim unnecessary expenses and reduce essential costs and instead direct that money to savings.
Pay your bills on time
It may be a struggle to pay bills on time if you’re waiting for the next payday for cash. However, one of the best money-saving tips is to stop paying late fees on utility bills, credit cards, or installment loans. These fees can be quite hefty, eating into your discretionary income that is better reserved for savings. If you need assistance making payments on time, talk with your creditors to see if you can adjust the payment due date to a time that coincides with your payday. This will help ensure you have the money you need to make your on-time payment.
Cut out any unnecessary expenses
Take a close look at the expenses you detailed when creating your budget. It may be difficult at first, but get rid of those things that are not absolutely necessary. These could include streaming services, a gym membership, online subscriptions, or other items that won’t negatively impact your day-to-day living.
Likewise, look for ways to trim the expenses you feel are necessary. Shop around for less expensive cell phone plans, or cut back your cable or satellite bill to a basic plan. Another expense to examine is your insurance coverage. Whether it’s car insurance, homeowners insurance, or renters insurance, shop around with at least three different insurance companies to see if you can find a lower rate than what you currently pay.
An unnecessary expense you may overlook is ATM fees. If you often use an ATM that is not part of your bank or credit union network, you could be spending a lot in fees. Typically, an ATM with a financial intuition outside of your regular network will charge you a fee and your bank or credit union will charge you a fee. These fees could range from $3 to $5, and they add up quickly. Instead, wait until you can stop by your bank or credit union’s ATM, or, better yet, evaluate if you really need that cash at all.
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Use saving tools
To help you reach your savings goals, enlist the aid of saving tools that can put money in your account automatically. For instance, you can set up a direct deposit for your paycheck, and then schedule an automatic transfer to your savings account. It doesn’t have to be much. Even $5 or $10 per payday will work.
You also can use apps to rack up more savings. There are numerous apps available, such as Earnin, which allows you to tip yourself when you think you’ve earned it. For instance, if you checked out a DVD at the library instead of going to the movies, tip yourself a few dollars. Or if you take coffee from home to work, tip yourself a dollar.
Consolidate your debt
If you have a lot of credit cards or loans, you might be able to save by consolidating those debts into one loan. Interest rates on credit cards can be very high — more than 25% — which can not only make it difficult to pay off the balance but also eat up a lot of your money. By combining your credit cards and loans into one loan, you can reduce how much you pay in interest — interest rates could be as much as half what you paid on those credit cards — and stash that extra cash in your savings account. To get the best interest rates on a debt consolidation loan, you need to have a good credit score (a minimum of 690).
Get a cash-back credit card
Whether you consolidate your credit cards or not, it’s a good idea to trade your existing credit card for a cash-back credit card. With a cash-back credit card, you get money back on all qualified purchases. Those funds could go directly to your savings account. For this to work, though, you will need to pay off your credit card every month so your cash-back reward isn’t wasted on paying interest charges.
Use rewards programs
So many businesses now offer rewards or loyalty programs that offer savings. For instance, when grocery shopping, use your rewards card to save more on your grocery bill. Many gas station companies also offer loyalty programs that will save you money on every gallon of gas you buy. Check with all the stores you shop at and the restaurants where you eat to find out what rewards or loyalty programs they have in place.
In tandem with the rewards program, try using coupons more. If you canceled your newspaper subscription to save money, don’t fret. There are plenty of coupon sites where you can download and/or print coupons. In fact, many grocery stores and restaurant apps have options to download coupons directly to your rewards or loyalty card so the savings are applied when you pay your bill.
Related: Best Coupon Apps to Save You Money
Get a side hustle
Working two jobs might not sound like much fun, but working a side hustle if even for the short term could be a great way to boost your personal finance profile. Whether it’s working at the local department store, mowing grass, or offering IT and computer services, you can make some extra cash that will bump up the balance of your savings account.
You can work a little or a lot, depending on how much time you have and want to devote to a side hustle. It might be a few evenings during the week or one day over the weekend. Regardless of how much money you make, it’s a great addition to your savings account.
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Pocket unexpected windfalls
Any time you receive cash you weren’t expecting, direct it straight to your savings account. This could be a tax refund, a bonus at work, or an inheritance from a loved one. It is tempting to spend that money on a quick weekend getaway or a new TV, but think about how much better you will feel when you see that boost in your bank balance.
Sell items you no longer need
Whether it’s a garage sale, online ads, or a consignment store, selling items you no longer want or need is a great way to declutter and make money. Go through everyone’s closets for clothes that no longer fit, sift through those toys the kids no longer play with, and pack up all that baby gear you don’t need anymore. You don’t have to ask a lot for this stuff to rack up savings.
Try a no-spend day (or week)
One of the best savings hacks is to not spend any money at all. For some people, this sounds pretty easy. And, if it’s just one day, it might be. If so, go for two days without spending. Or an entire week. For every dollar not spent, that’s a dollar that could go into your savings account.
Lest you think a no-spend day means sitting at home staring at the floor, use this time as an opportunity to participate in free activities. That could be as simple as reading a book or playing catch with the kids in the backyard. Maybe the local museum has free admission once a month. Or there’s a book club meeting at your nearby bookstore. Check to see if there’s a free movie night in the city park. You’ll be surprised at how many free activities there are to do around town.
Seek out assistance
While the savings tips listed above are a good place to start, if you feel like you need more help, consider talking to a debt counselor. You can talk with a counselor with the Consumer Credit Counseling Service (CCCS), a nonprofit organization that helps people find workable solutions to improve their finances. This is a free service in a no-judgment zone, so don’t hesitate to call if you need assistance.
Reward your efforts
Saving money can be very difficult when you are broke. And while it takes a lot of commitment and sacrifice, building your savings is possible. In fact, when you reach a specific savings goal, you should reward those efforts. Obviously, you don’t want to do anything that will dip into the savings you have accumulated, but definitely treat yourself with something meaningful. Maybe that means going to the new movie you’ve been wanting to see. Or eating a meal at your favorite restaurant. Or buying that new pair of shoes. Whatever it is, keep it reasonable but make it count so you’ll be encouraged to continue putting in the hard work of saving your money.
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The bottom line
Living paycheck to paycheck can be difficult. Not only is it a challenge to make ends meet, but it also takes a toll on your health through stress and anxiety. By making a commitment to your financial goals, you can start building your savings. Before you know it, you’ll have not only an emergency fund for unexpected expenses but also additional money for future savings goals such as a vacation, buying a new car, or paying for your child’s college.
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Writer
Karon Warren is a freelance writer who has covered articles in finance, insurance and health for sites like Reviews.com, USA Today, Healthgrades, among others.
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