How to Save Money While Living on a Budget

A budget is a way to plan your income and expenses over a period of time so you can do your best to save or reach a specific goal.

If you are not succeeding at saving money right now, it is time to reset your strategy. If you have not started a budget yet, that is the first step. Read How to Manage a Monthly Budget to get a clear idea of how to do it.

How to Save Money Even When You Live on a Budget

Review your spending habits. For example: compare prices before you buy. Commit to comparing essential items and look for coupons and sales online or in your local newspaper. Then buy the items that offer the best value. Next, take the difference between what you paid and what you would normally spend on that item and deposit that money into a savings account. Even if the amount is very small, those small sums will add up over the years.

You Cannot Spend What You Do Not See

Start setting money aside automatically on every payday. You can set up direct deposit so part of your paycheck goes straight into a dedicated savings account, then build your budget around what remains. This works especially well for people who struggle with self-control and discipline.

Many employers can split your paycheck deposit between a checking account and a savings account. Or if you work for yourself, schedule automatic transfers from your main checking account into your savings accounts.

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The 50-30-20 Budget

The 50-30-20 budget is Elizabeth Warren’s balanced money formula. Here is the breakdown:

• 50 percent: Needs. These are also known as the “must-pay” commitments.
• 30 percent: Wants. You deserve to enjoy some of your money.
• 20 percent: Savings. Last but not least. It sits at the end because it is the money left over. Some of this can also go toward paying off past debt.

The idea is that there should be enough for each of the three categories and that they balance each other in a 50-30-20 split.

That sometimes requires a lifestyle change. In my case, I had to learn to give up certain luxuries early in my career because I had nothing left to save at the end of the month. And at the first emergency, I had to put it on a credit card, which took me a long time to pay off. It would have been much easier if I had had savings at that time.

Some people (like me) adjust the strategy a bit after a while. In my case it looks more like 30-20-50. Why? Because I think longer term.

Ideas for Adjustments You Can Consider to Start Implementing the 50-30-20 Budget

1- Change Where You Live

If you are living on a tight budget, you may want to choose a place a little farther from work. Living on the outskirts of the city often means cheaper rent, and public transit can cost less than gas. It goes against the idea that money buys happiness, but here we are talking about making a temporary sacrifice so you can save while you get financially stable. This is more relevant for young people just starting out.

In that case, getting a roommate could cut your housing cost in half. If you can sacrifice some comfort and privacy, this can make a significant difference in your monthly budget.

2- Consider a Side Hustle

If one member of the household is not working, even a part-time job can help raise household income. Finding other ways to earn extra money can improve your overall balance each month. For example, one of my wife’s aunts earns up to US $16,000 a year working from home to help her husband with expenses.

Evaluate how you spend your time and see whether there is an employment opportunity that could help you earn a little extra every month.

3- Cut Back on Luxuries

Do you eat out every day? Maybe you order Uber Eats every night when you feel too lazy to cook? You may need to make some sacrifices with your wants in order to hit your savings goals.

Maybe you can eat dinner before going to a soccer game or watch a movie at home instead of going to the theater. Maybe a minor-league baseball game instead of a Major League game can still be a fun experience at a much lower price.

4- Review Your Costs

Is there a way to lower your electricity bill? Does the air conditioning need to run all night? Do you leave appliances on when they are not in use?

Instead of going to a salon or barbershop, it may be worth visiting a local beauty school. They often offer low-cost haircuts so students can get experience.

Do You Already Have a Budget? What to Do Next…

1. Build some emergency savings first: Do not make the same mistake I did. Save for emergencies first, then for your projects.
2. Save those extra paychecks: Year-end bonuses, commissions, and other extras… instead of spending them all at once, save them. Live as if you never received that extra money.
3. Let compound interest work for you: Look for the best investment accounts banks offer, keep depositing regularly, leave the money alone, and enjoy the magic of compound interest. I have known many friends who became millionaires simply this way.
4. Take the next step: Once you have an emergency savings account, have paid off debt, and have extra savings, what is next? It depends on your goals. Now you can plan for big expenses such as education, future cars, buying a home, and even starting your own business.