How To Save Money On A Low Income

No matter where you fall on the socioeconomic scale—anybody, regardless of income, can make financial mistakes. Unfortunately, the impact of these mistakes hit a low-income household harder because there is less money to spare.

The stakes are simply higher if you go over budget. A low-income family risks missing their credit card payment, rent, or having to cut back on groceries!

Whether money management has always been a challenge for you or your finances have taken a recent hit – it’s important for your financial future to balance your budget and save money. Especially if you’re working with a small income.

Luckily, there are some effective ways to save money on a low income.

Using the following tips, challenge yourself to increase your savings and live within your budget – while still enjoying life.

What Is Considered Low Income in Canada?

Statistics Canada collects data and sets thresholds that define what is considered a low income household in Canada. Low income is defined as “income thresholds below which families would likely have to spend a substantially larger share of their income than average on the necessities of food, shelter and clothing and thus would be living in a difficult economic circumstance.”

Statistics Canada (2018) defines low income for Canadians as $24,183 or less for a single person after tax; for a family of four, the low-income level is $48,366 or less.

How to Save Money on a Low Income

Okay, so let’s get right into how to save money, how to stop spending money, and the best budgeting tips for low-income families.

1. Lower Your Housing Costs

Low-income households need to pay for housing first and everything else after that. However, according to the U.S. Bureau of Labor Statistics, housing costs can be one of your biggest expenses.

The average Canadian spends 45.9 per cent of their income on housing costs (including taxes, rent/mortgage payments and utilities). Big-city dwellers in Vancouver and Toronto spend an average of 79.7% and 72% of their income on housing respectively.

However, the Canada Mortgage and Housing Corporation (CMHC) states that affordable housing shouldn’t cost more than 30 per cent of a person’s monthly income.

Imagine if you could cut down your housing expenses by a few hundred dollars each month to meet that 30% threshold? That extra money could make a big difference in the amount of your savings.

Here are a few ways to cut your housing costs:

• Downsize – Consider moving into a smaller apartment or house as a way to cut costs.
• New location – Location is a key factor in real estate prices. Could you save money by changing neighbourhoods? For example, moving from downtown to the suburbs could save you money in rent or mortgage payments.
• Rent out a room -If you have extra space in your home, you could rent out a bedroom or basement apartment. Consider long-term tenants or short-term rentals through Airbnb. Perhaps you have a sibling or grandparent that would like to move in and help with the rent.
• Rent out a parking spot – If you live in a big city, you might be able to rent out a parking spot to a commuter or even a neighbour who needs an extra space.

Consider your situation and decide which option might work for you.

2. Set Up an Emergency Fund 

Every family, regardless of income, needs to have an emergency fund. Use this money for unexpected expenses such as car repairs, medical emergencies, job losses, or when your fridge gives out.

Emergency savings are especially important if you are on a tight budget because when surprise expenses occur, there’s a bigger risk that other bills will go unpaid.

If you don’t think you have any cash to spare for savings, start out by just dropping your loonies and toonies into a jar. Empty out your pockets, wallet, and purse each day into your savings jar – you’ll be surprised how quickly it fills up. I used to use this method when I was a server in Toronto and I saved-up $600 in 2 months!

Then deposit the money into a Tax Free Savings Account (TFSA) or high interest savings account so you earn interest on your cash.

Read: How To Start An Emergency Fund In Canada

3. Automate Your Savings

Making the choice to save money over spending it can be difficult. You are more likely to make withdrawals from your checking account versus a savings or investment account designated for long-term savings.

A portion from every paycheque should be set aside into your savings account(s). Set-up automatic transfers with your bank for an amount you can afford – even $25 a pay will grow into a healthy nest egg over time.

Plus, you’ll gain peace of mind knowing that your savings are safely tucked away.

Read: How to Budget for a New Baby: First Year Checklist

4. Create A Budget

Budgeting might not sound like a super-fun way to spend your free time, but it is the KEY to gaining control over your spending and building your savings. It really can be an enjoyable process too – I promise!

There is power in having a plan for your money.

With a budget, you can set specific savings goals and celebrate as you meet your targets. And you’ll become aware of exactly where your money is going.

Find step-by-step instructions in our article, How To Make A Family Budget. It will teach you how to create a budget just for you.

If you are the type of person who likes every step and helpful budget tool laid out before you, check out our Family Budget Planner – 18 printable worksheets for budgeting beginners.

5. Pay Off Your Debt

Debt can hold you back from achieving your savings goals. Making minimum monthly bill payments over many years can sabotage your financial plans – not to mention cost you thousands in extra interest payments.

Make it a priority to pay off your debt. Write down a specific repayment plan as a part of your budget. Our Family Budget Planner has an easy to use worksheet specifically for this task.

It will take commitment to erase your debts, but you can do it! Once eliminated, you’ll be able to put the money you were using for debt repayment into your savings accounts.

6. Find a Fee-Free Bank

The banking scene is becoming more and more competitive – which benefits you, the customer. You’ve probably seen the ads for fee-free banks such as Tangerine online banking on TV.

According to a report by Ratehub.ca, the average millennial has so far paid out $760 in banking fees over her or his lifetime. For baby boomers, that number increases to $2,200. Gen-Xers, like myself, have doled out a depressing $2,800 in banking fees on average so far. Yikes!

That coupled with overdraft penalties and other investment fees, and your regular bank is siphoning-off money you could otherwise be saving.

There are many banks now that offer free accounts without any associated fees. Why not take advantage of this and save yourself more money each month?

Sure, it will be a nuisance switching over your bank account information with your employer and automatic bill payments…but you’ll be very happy you did!

Read: How to Stick to a Budget – 12 Doable Tips

7. Find Savings In The Kitchen

Food spending is a another big expense in most budgets – especially if you have a big family. Busy families with kids are faced with the constant temptation to eat prepared food at a restaurant or grab take-out after a long day at work.

According to the Bureau of Labor Statistics (2018), the average American household spent over $3,400 on food away from home.

Where there is big spending, there is room for big cost cutting!

You might not eat out that much but there is likely room for improvement. Try to limit your take-out and restaurant spending to just once or twice per month.

One of the best ways to resist last-minute food purchases is through meal planning. I strongly dislike making dinner! But, I’ve come to realize it is not the cooking part I hate, it’s the figuring out what to cook.

If you already have a plan for what you are going to eat for dinner, it is easier to resist stopping at your favorite take out place on the way home from work. Meal planning can take some time getting used to, but like all habits, give it a few weeks and it will become the new normal.

Finally, there is also savings to be found on the groceries you buy for home. Do your big grocery trip once a week and make a list before you go. Take an inventory of your pantry to see what food you already have on hand and stick to your grocery budget.

8. Enjoy Free or Affordable Entertainment

If there is one thing staying home during the pandemic has taught me, it is the value of free entertainment.

Your entertainment budget is a variable expense so you have a lot of control over how much you spend here. Frugal, yet fun, activities can allow you to grow your savings without sacrificing quality of life.

Here are a few of my favorite budget-friendly entertainment options with kids:

• Matinee movies.
• Family talent show
• Host dinner parties instead of going out.
• Go for a hike and do a scavenger hunt.
• Practice cooking with your kids.
• Look for free museums to explore.
• Indoor camping/movie night
• Go to the library and local community events

Do some research in your community to find the best inexpensive entertainment options.

Read: Smart Money Ideas for Women at Every Age

9. Reduce Your Car Costs

When you purchase a car you also drive away with thousands of dollars in monthly payments and maintenance costs each year. If you live in a remote area and need to drive to work, car insurance and repairs are probably expenses you can’t avoid.

However, there are ways to limit the dent these costs make in your savings goals.

• Comparison shop for car insurance – You might be able to save hundreds of dollars each year by switching to a different insurance company. Check to see if your employee insurance provider offers car insurance. Bundling your car insurance with housing/rent insurance can also reduce overall costs.
• Pay off your car quickly – Try to pay off your car early. In the future, avoid financing a car due to the interests rates involved.
• Buy a used car – If you are drowning in expensive car payments, see if selling or trading it in and purchasing a used car will save you money.
• Use less gasoline – If you live in a city, cut down on fuel costs by using public transportation or biking to work.
• Car pool – Split the cost of your daily commute by sharing gas and parking expenses with a co-worker.

10. Increase Your Income

If you’ve hit the wall and can’t squeeze anymore dollars out of your budget, the next step is to increase your income.

I understand that finding the time, and energy, to work MORE is a huge challenge for parents. I’m a full-time working mom of 4 young daughters, so finding time for my writing side hustle takes finesse. But it is doable to increase your income.

Here are several ways to increase the number of dollars you bring home:

• Ask for overtime hours or extra shifts with your current employer.
• Take on a second job in the evening or on weekends.
• Ask for a raise.
• Improve your qualifications so you are eligible for a promotion or new position.
• Start your own business or side hustle such as walking dogs, freelance writing, babysitting, yard maintenance, or refurbishing old furniture. Basically any talent you possess can be turned into a way to earn extra cash.

If you have kids, consider teaming-up and starting a part-time job together. For example, officiating youth soccer matches is a fun, outdoor job that kids and adults can both do to earn money.

How To Save Money On A Low Income Conclusion

Finding extra money on a small income is possible. It takes some planning and discipline but the rewards are well worth it. Get started today – set small, attainable goals for yourself, and smile knowing you are improving your financial future.

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