You need savings to start improving your life, but how do you do that when you’re barely scraping by? Finance blogs always list the importance of a budget, but for people who live paycheck to paycheck, there isn’t a lot of room to put anything away. Practical as a budget may be, it requires some additional planning and innovation to work for people who aren’t overspending but underearning. If you currently have a low-income job and want to start getting ahead, here are some helpful tips. But first, let’s classify what low income really means.
The Working Poor
The poverty line in the United States cover 48 states and the District of Columbia. Here, a single person earning $12,760 or less is considered poor. In Alaska and Hawaii, the figure is slightly higher at $15,950 and $14,680, respectively. Although you may have a full-time job and earn far more than this, you could still be working poor. This means you do not have any money left over after your pay, or 80 to 90 percent of your income is put toward living expenses and bills.
People who have high credit card debt and student loans can be considered working poor even if they have what everyone else sees as a stable, high-paying job. But after taxes, especially for single people, and monthly payments, there is often barely enough left by for these individuals to pay their rent and buy enough food to eat. Regardless of anyone else’s definition, you know whether you’re struggling financially. Use this guide to suit your needs, and modify the suggestions to fit your abilities or limitations as you see fit.
Refinance Your Loans
In some cases, the job isn’t the problem so much as the debt. If you are looking for ways to optimize a low income, then consider refinancing your student loans or car loan. Refinancing can save you hundreds of dollars a year by extending the length of your loan to lower your regular payments. While this may not be ideal for everyone, refinancing can give you enough breathing room to earn more each month without skipping payments or falling behind on bills.
Open a Savings Account
You may not have any money to save big, but a savings account can earn you money just by having one. When you put away any extra money into a savings account, you’re far less likely to tap into it when it’s just sitting in your checking account. This means no more impulse buys or coffee runs that drain your limited resources even further. Look for a savings account that earns interest, and automate the process to deduct a set amount from your paycheck each month. Even $20 a month can make a difference when you’re trying to get out of a slump.
Stop Relying on Your Credit Cards
The more money you put away, the less you’ll have to perpetuate the cycle of debt by relying on cards to pay your bills. While using a credit card is good in certain circumstances, overspending only leaves you saddled with debt you can’t repay. Coupled with interest, late fees and other expenses, you’re likely to spend years suffocated by credit cards while still relying on them to survive. Credit cards are, in their most basic form, a way to spend your usual budget while building a solid score. When you have a low income, this means using your card for routine expenses like gas, groceries and rent, so you can pay it back in full the next month. If you are in debt, contact your creditors and ask about what you can do to get on track. Let them know you’re interested in setting up a better payment arrangement, and they may be able to lower your monthly payments.
