Can a Person That Doesn't Earn Much Money Build Up a Savings?
Though millionaires can live a comfortable existence by spending only the interest accumulated on their large savings funds, many Americans living paycheck to paycheck spend more than they earn. Building a savings fund may sound laughable to people barely capable of affording gas, but paying yourself first and establishing a savings account is one of the wisest financial decisions a person can make.
Other People Are Reading
-
Reviewing the Budget
-
Whether you earn enough to invest in savings depends on your monthly expenses. Before you save, you need an emergency fund. Reviewing your budget will help you pinpoint where your money goes every month. On a spreadsheet or a notebook, list your essential expenditures including housing, utilities and food. Subtract these costs from your income and determine the amount of cash that remains. This figure is the amount of money that you are capable of saving. If you have no amount in savings, strive to invest as much of your disposable income into the account as possible. Establish at least six to nine months’ worth of living expenses. Once this cushion is created, you can put the brakes on your savings spree and allocate 10 to 20 percent of your take-home income to your savings account.
Cutting Expenses
-
If your take-home pay barely covers housing, utilities, food and other expenses, find ways to reduce them. Lease out a bedroom in your house. Grow your own food. Dry clothes on a clothesline instead of using an energy-intensive dryer. Spend more time outdoors and turn off lights and electronics when you leave. Buy energy-efficient light bulbs. Another way to reduce expenses is by going over your transactions; for every purchase, ask what cheaper alternatives exist. For instance, if you bought cans of soup, find recipes online that could be made for a fraction of the price. If you have an online movie subscription, scour the internet for websites offering free documentaries and ask your friends to borrow movies from their collection. Libraries are additional, oft-forgotten sources of free entertainment.
-
Pursuing Alternatives
-
If cutting expenses isn’t feasible, finding additional revenue sources is another way of building a savings account. Consider writing and selling an e-book, performing odd jobs for neighbors, starting a side business or getting rid of your old things. Because the stakes are relatively low, have fun devising creative ways to raise cash. For instance, break out your old trombone not played since college and perform in public transportation venues for spare change. Allocate one evening a week to enhancing your budding side business. MP Dunleavy also suggests in an MSN Money article to set aside all $5 bills in a can and to put $1 in a jar for every load of laundry performed.
Benefits
-
Though building savings may take a low priority in lieu of other pressing expenses, having a savings account saves you money in the long term. For instance, a savings account enables you to fix the leak in your roof. If you didn’t have the funds to stop the leak, you could incur additional expenses in mold and carpet damage. Similarly, using savings to pay for brake pads enables you to save money by not paying for new rotors.
-
