Financial experts preach the importance of having an emergency savings, and you probably understand the significance. But if your income is barely enough to keep up with your normal expenses, such as rent and utilities, saving may be the last thing on your mind. However, if you lose your job, have a medical emergency or need a car repair, lack of disposable income can complicate your situation.
Saving when you’re broke is challenging, but very doable. All you need is a good strategy.
1. Barter with your friends.
Exchanging goods and services without money is one way to save when you’re broke. Let’s say you need childcare for your kids, yet tuition at a local center is too expensive. Rather than shell out money each week for childcare, work out an agreement with a friend or relative to barter services. For example, a friend or relative may agree to watch your children for free, in exchange, you provide this person with a free service. It’s a win-win situation. The money you save on childcare can help build your personal savings account.
2. Contribute to an employee retirement account.
If you have the option of contributing to a 401(k) offered by your employer, take advantage of this opportunity. Your employer deducts a certain percentage from your paycheck and deposits this money in a retirement account. Oftentimes, employers match employee contributions. This doesn’t provide liquid cash, but if you’re hit with a financial hardship or need cash for a down payment on a house, you can borrow against your 401(k). The percentage you’re able to contribute varies. You might contribute a low percentage, and then slowly increase your contribution as your income grows.
3. Evaluate your services.
Maybe the problem isn’t too little income, but too many personal services. It is difficult to save money if your funds are allocated for other purposes. For example, you may have weekly hair appointment, weekly nail appointments or hire someone to clean your home. Additionally, you might have someone wash your car, mow your lawn and walk your pets. And let’s not forget cable services and phone services. These services are convenient and free up your time, but they also take a chunk of your income. Scale back on your number of services and deposit the savings into your bank account.
4. Clip coupons.
Don’t view coupons as a hassle. Throwing away a coupon is like throwing away free money. You can find a coupon for practically everything from food to clothes. Retailers and restaurants frequently send coupons in the mail and print them in the newspaper. And if you subscribe to an establishment’s email club, you can receive coupons and other promotions via email. Clip coupons before grocery shopping and reduce your food cost, and if you look for coupons prior to dining out, you might find a two-for-one special.
5. Change the way you commute.
Driving your own car to work provides a certain amount of freedom. But with a daily commute, your transportation cost can skyrocket. Keep track of how much you spend on transportation for an entire month. This includes the cost of fuel and tolls. Compare this figure with the cost of public transportation. A bus or subway ticket in most cities will cost around $2. Spend $4 a day on transportation and that’s only $20 a week. That’s probably half of what you spend to fill up your tank for the week. And since you’re driving less, there’s less wear and tear on your vehicle. This translates into lower maintenance costs.
6. Put your check into your savings account.
Here’s a unique approach to save money when you’re broke: deposit your entire check into your savings account and transfer money into your checking as you need to pay bills. Most banks allow up to six transfers from your savings to your checking account each month. If you make more than six transfers, your bank may charge a fee. Since there’s only cash for bills in your checking account, this approach can reduce frivolous spending, and whatever you don’t need for bills is left in your savings account.
7. Get help from your bank.
Banks offer an array of saving options. For example, some banks will round up purchases to the nearest dollar and deposit the surplus into your savings account. Additionally, some banks will deduct one dollar from your checking account and deposit this money into your savings account each time you use your bank debit card. It’s the most convenient, effortless way to save, and in most cases, you don’t miss the money.
8. Socialize less.
Everyone wants to have a good time, but at what price. Keep track of how much you spend on entertainment for an entire month – this might explain why you’re broke. It’s difficult to save money when you’re constantly spending your disposable income hanging out and socializing with your friends. Whether you entertain large groups at your home or meet friends for dinner, the more you blow the less you have available for a rainy day. Don’t view saving as an option, see it as a priority. Let’s say you’re spending $300 a month on fun. Scale back to $100 a month and you’ll increase your personal savings by $200 every month.
9. Pay yourself first.
Before you give money to Visa, MasterCard, American Express or your mortgage company, pay yourself first. Think of your savings account as another bill and you’ll quickly build your emergency fund. Maybe you’re not able to deposit a lot every month – that’s okay. Something is better than nothing. Do your best to save 10% of your income, but if that’s a stretch, cutback to 5%.
10. Make good use of extra money.
The biggest mistake you can make is frivolously spending every dime of a work bonus or tax refund, especially when you have zero cash in the bank. It’s okay to treat yourself, but be reasonable. There are better, more responsible ways to spend your cash. If you don’t have the opportunity to save money throughout the year, a work bonus or tax refund can provide a financial cushion.