A slew of financial burdens — including inflation, the resumption of student loans and soaring rates — has been taking a toll on many American consumers. So it’s not surprising that 62% of consumers live paycheck to paycheck, according to a LendingTree survey. And for low-income earners, being able to make ends meet and covering basic needs has become arduous, and maximizing every dollar can be stressful.
Yet, some experts said that with some planning, there are ways to stretch your dollar further.
“First, I want to acknowledge that some personal finance tactics simply can’t overcome bigger challenges like inflation, rising cost of living, access to affordable healthcare, etc.,” said Steve Sexton, CEO of Sexton Advisory Group. “That said, certain practices can help you stretch the dollars you have, especially if things are tight financially.”
Budget
To stretch your dollar when you’re on a lower income, start by creating a budget and prioritize essential needs, such as housing and food, and then track spending in the more peripheral areas, said Peter Earle, senior economist at American Institute for Economic Research.
Earle added that although pride may understandably be a sticking point, investigate and take advantage of community resources and government assistance programs at the state and federal levels.
“And harvest all available resources, both online and physical, for saving money on food and other necessities. Sales, coupons, rebates and aggressive price comparisons can maximize the reach of lower income dollars,” he added.
Kyle Enright, president of Achieve Lending also noted that budgeting scares off many people, because it sounds like it will limit spending and be difficult to do. In turn, he said, many people with lower incomes think it won’t be useful, because they don’t have a lot to work with.
“Just the opposite is true, though. If you are trying to stretch every dollar, it is critical to know exactly what you are dealing with,” he added.
Avoid Debt
While Sexton conceded that this can be challenging if you’re living paycheck to paycheck and don’t have the safety net of an emergency fund, avoiding debt is critical, especially if you have a low income.
“Debt puts you in the unfortunate position of wasting your already limited paycheck on paying interest, and it can be a difficult cycle to break out of,” he said.
In turn, steps such as having a budget and setting aside a savings goal — which should start with an emergency fund if you don’t already have one — are intended to keep you out of debt, too, he added.
Make Your Money Work Harder for You
For Joe Camberato, CEO of National Business Capital, this means that instead of spending your money once, think about how you can use it to open up new opportunities and get more value in return.
“For example, take your local fitness center or health club. It’s not just a place to work out — some offer a lot of amenities or free food,” he said. “Why not take advantage of these benefits without spending extra? It’s about seizing opportunities to get more out of your money.”
Another practical tip: Buy in bulk, he said, as this can save you money, especially if you plan ahead.
“Instead of buying lunch every day, stock up early in the week and make your own meals using leftovers or extra sides. Take action to make your money go further and create more opportunities for yourself,” he added.
Along the same lines, Sexton recommended shopping around and trying to negotiate better rates. This can apply to phone/internet bills, automotive insurance and homeowners/renters’ insurance, for instance.
“Don’t be afraid to pick up the phone and call your insurance provider to ask for a better rate — the worst they can say is no!” he said. “If they say yes, this could save you up to hundreds of dollars a month, which you can allocate to other key expenses, savings or investments.”
Pay Your Future Self
“Life is expensive. Inflation is real. Not all low income individuals are focused on saving for the future. They are focused on the here and now. My advice: Pay your future self, first,” said Melissa Murphy Pavone, CFP, CDFA, director of investments at Oppenheimer & Co.
For instance, if your company has a retirement account, enroll — and if they don’t, open an IRA.
“By contributing to your retirement, you are building a solid financial foundation for your future,” she said, adding that this could also possibly be tax advantageous. “The results of compound interest are powerful. As your income increases, lifestyle inflation creeps in. Avoid the urge to spend more as you make more. Save more. Invest the difference. Your future self will thank you.”
Save — Even a Small Amount Each Month
Enright said that you should make sure your budget includes savings as a line item. That way, savings becomes a “bill” you pay to yourself. He added that while standard advice is to save 10% — or more — of income, this may be “far too much when you’re not making much.”
“Go with 5%, 2% or a few dollars a week — whatever you can consistently handle. Most banks and credit unions today let you set up a regular transfer from a checking to a savings account, so you can put it on autopilot,” he added.
In that same vein, while you should set goals, it’s important to keep them reasonable. For instance, while experts recommend that an emergency fund should cover six to nine months of living expenses, Enright suggested, “Start small, thinking about the kind of expense that might send you right to the credit card.”
“Maybe it’s an appliance repair or a trip to the doctor’s office. Setting an initial savings goal of even a few hundred dollars can go a long way,” he said.
Another tip: Keep every receipt for every single expense — paid in cash or other — for a couple of weeks.
“Every person and family will be different. This way, you can see where your money goes and where you can cut back. You may find some surprises,” he added.
More From GOBankingRates
Source link