According to a recent LendingClub study, 61 percent of the U.S. population was living paycheck to paycheck by the end of 2021, down from a peak of 65 percent in 2020. Even among those making six figures, 42 percent reported living paycheck to paycheck, according to a study of over 3,000 workers. As a result, many of those surveyed have steadily increasing credit card debts and can’t seem to find a way out of their situation.
When you have more money coming in, it’s clearly much easier to save for an emergency fund. But how is this achievable when money is tight? If your circumstances make it difficult to save, you don’t have to move to a lower-cost area or obtain a big raise to start putting more money aside. Let me show you how to save money on a tight budget by making small changes:
Put Money Into a High-Yielding Savings Account
Simply shifting your money to a different savings account that earns higher interest rates might help you attain your savings goal faster. What should you be on the lookout for? You should go for an account with a high annual percentage yield (APY).
A high-yield account is available at both online and traditional banks. These financial organizations may provide APYs ranging from 2.0 percent to 2.5 percent. I understand that a 2% interest rate cannot even keep up with inflation during most years. However, if you’re going to put money in a savings account, you may as well put it somewhere that will yield more than the national average of 0.09 percent.
Assume you deposit $5,000 in an account with an APY of 0.09 percent. If you put $50 in that account every month for a year, you’ll have $5,604.77. However, if you put the same amount of money into an account with a yield of, say, 2.02 percent, it will increase to $5,708.11. You’ll make an extra $100 each year by making a minor tweak.
Examine the restrictions carefully before deciding to deposit your funds in another bank though. Do you have to make a minimum deposit, complete a certain amount of transactions every month, or accept paperless statements? Check if the restrictions are appropriate for your position and will not jeopardize your efforts to save.
Organize Your Expenses Into Fixed and Variable Costs
In later articles I will dive deeper into the positive psychological effects of weekly budgeting and starting your budget on a day that works best for you. However, it is also beneficial to split your fixed and variable costs. Fixed expenditures are those whose amount does not fluctuate month after month, such as rent, utilities, subscription services, and internet. Variable costs on the other hand are things you spend money on that differ from month to month, such as groceries, entertainment, clothing, personal products, and so on.
When you divide your fixed and variable costs, it is much easier to automate your savings. You may do so by calculating how much money you’ll need to meet your fixed costs and putting it on a debit card. You’ll know precisely how much you have to pay each week on variable costs. So, if you have $250 to spend on variable expenditures like groceries, eating out, and clothes, you may set away a portion of that $250 for savings. The remainder can be used for day-to-day costs and purchases.
Make Your Savings Automatic
For most people adopting the “set it and forget it” attitude is probably best. Some finance geeks believe that automation makes you lazy. However, in my experience, it alleviates a lot of choice fatigue, which may have prevented you from saving in the first place.
You don’t have to argue about whether you can afford to save that money since you’ve already committed to it earlier. Yes, you still have student loan debt to contend with, as well as other financial obligations and aspirations. The worst that may happen is that you will have to make changes later on.
If you want to save $3,000 in six months, you’ll need to set aside $118.20 every week. Trying to make $6,000 in the same length of time? You should aim to save $236.40 every week.
Create a Splurge Fund
Even if you’re barely scraping by, it’s critical to have splurge money – rather than resisting your want to indulge, embrace it. A splurge fund, in my opinion, may save your finances in the long run. You may create one by cutting your spending or starting a side hustle. When people are having fun or on vacation, such as during football season or over the holidays, it is a good time to take on more work.
First, open a separate savings account for money that you may spend on whatever you like. Then, if you’re saving money on a certain spending category – eating out, drinking at bars, purchasing clothing – make sure to stash whatever money you save. So, if you opt to stay home and cook instead of going out to supper, save $30 for a future pleasure. Your intelligent spending choices should yield immediate results.
Consider Transferring Your Balance
Consider moving your old credit card debt to one with a zero percent APR introductory rate to save on interest costs. The introductory rate for such cards normally ranges from six to twenty-one months. During that period, you will not be charged any interest on your amount. The aim is to pay off the remaining amount before the introductory rate expires.
Are you sold on the concept? Not so fast. Before you decide to transfer, find out how much the balance transfer cost will be. It’s usually a percentage of your whole balance. Furthermore, you’ll want to know what the APR will be when the promotional time is over, just in case you can’t pay off your credit card debt in full during the introductory rate period.
If you are unable to pay off the debt before the intro rate expires, you will be responsible for a balance on a card with a possibly higher APR than your previous card. In conclusion: While you’ll be enthralled by the prospect of not having to pay any interest for an extended length of time, read the fine print to ensure you understand what you’re agreeing to.
When you’re loaded with debt and other financial hardships, saving might seem nearly impossible. But it’s easier than you think – little changes here and there may make a major impact in the long term. Be diligent when putting the described habit changes into practice and good luck on your way to more financial freedom!