If it feels like you’re living paycheck to paycheck, saving money may seem like a luxury you can’t afford. However, whether you’re breaking even or struggling to pay off debt, just saving small amounts each month can make a big difference down the line.
In this blog, we’ll share some quick tips to help you save money on a tight budget and plan for your future!
According to the Consumer Price Index December 10 summary, the average price of consumer items increased by 6.8% from November 2020 to November 2021. This is the largest 12-month increase since the period ending June 1982. Fortunately, if inflation does continue to grow at an accelerated rate, you can take steps now to help safeguard yourself and your household from rising inflation. Simply monitoring your spending and setting aside funds each month for saving can make all the difference later in life.
Additionally, your bank account balance can noticeably increase over time through compound interest on your initial deposits. Compound interest is the interest accrued on both the initial principal and the accumulated interest from previous periods. According to an article from Aware Super, the power of compounding is the snowball effect that happens when you receive returns on your earnings and your original investments. While the results may seem small at first, the compound interest accrued can be significant over decades.
For more information about compound interest, check out Why Save Money in Your Twenties from Porte.
Key Takeaway: Even if you are on a tight budget, adjusting your budget and setting aside a feasible amount for savings can allow you to take advantage of compound interest, help safeguard your household from rising inflation, and provide you with financial breathing room in case of emergencies.
Tips for Saving Money on a Tight Budget
1. Set Savings Goals
Finding motivation is key to sticking to your savings plan, regardless of your current budget. After all, why save money for later when the things you want to purchase right now look so enticing? To motivate yourself to make cuts and set funds aside for your savings account, you’ll need to establish goals. Having a clear idea of what you are saving for will provide a sense of purpose to your efforts and inspire you to save when you’re tempted to spend.
Short-Term Savings Goals
Short-term savings goals are ones you would like to accomplish within the next three years. They can include saving up for a vacation, down payment for a car, or building your emergency fund. Establishing an emergency fund with 3-9 months’ worth of living expenses is a great short-term savings goal that can provide you with a necessary buffer for unforeseen expenses.
Long-Term Savings Goals
Long-term goals should be reached later in your life and can include things like saving for a down payment on a home or your child’s education. If you’re saving for a far-off goal like retirement, an investment account like a 401(k) or an individual retirement account, usually referred to as an IRA, can be more suitable places to store funds than a standard savings account.
2. Make Small Cuts Wherever You Can
Finding exactly where to cut back from your paycheck can be difficult in a tight budget with relatively high expenses. However, targeting multiple areas to cut back rather than just a lot in one area can be more feasible. According to Purchasing Power, by making small cuts to expenses like your internet, phone service, gym membership, and groceries, you can make a bigger dent than by getting rid of one section entirely. For instance, see if you can find a cheaper gym or switch to a different phone plan, as every little cut counts.
3. Ensure Your Budget is in Great Shape
Your income is your best tool for saving money! If you know where your money is going, whether it’s rent, utilities, groceries, or entertainment, then you can plan how much you can save. If you are interested in learning more about budgeting and finding the right one for you, check out the Flare Blog article on budgeting strategies.