A question commonly asked is, “Can low-income people save money?” People with low incomes have a unique set of constraints. However, even if you do not earn much monthly, you can save a bit of money with the right approach, even if you don’t have the best loan app.
How Low-Income People Can Manage Their Finances
If you live from paycheque to paycheque, you may think that financial comfort is a distant dream. But this is far from true. To achieve financial comfort, you don’t need to buy the latest luxuries – being able to meet life’s milestones and financial emergencies is sufficient.
Even on a low income, you can find a path to achieving financial comfort by making the right financial decisions. It’s not easy, and you will need to exercise a lot of discipline. But let’s assume that you are a low-income family with children. Here’s what you need to do:
1. Save for Daily Expenses
A basic bank account is all you need to save for your daily expenses. If you have a monthly salary, your salary bank account is what you need to work on. If you are self-employed, look at your bank balance at the beginning of each month and plan accordingly.
Paying yourself first is the best start you can make to start saving small amounts. So first, make a list of your monthly expenditures like children’s school fees, electricity bills, and even money for your retirement. Then, put aside these amounts first.
You will now use the remaining money for your daily expenses. When you have a limited amount left, you will be motivated to find ways to reduce your expenses. For example, look for deals at the supermarket, get a cheaper internet provider, or cut down on eating out. After a few months, you will feel comfortable managing your finances.
2. Create an Emergency Fund
Opening a separate bank account to deposit your long-term and short-term savings is a good idea. This type of bank account is loosely called a “jam jar” account. The idea is to put aside small amounts of money; it is like storing loose change in a jar. It’s like having access to cash through an instant cash loan; only, it’s your own money.
A good approach is to stash away a percentage of your salary every month. Then, if you are self-employed, you can add a percentage of each payment you get from a client. You will be amazed at how the balance of your jam jar account builds up.
When you set up your separate account, make it difficult for you to access the money by not taking a checkbook facility or internet banking. That way, you will not be able to withdraw money from that bank account except during an emergency.
3. Save For Your Children’s Education
Your jam jar account won’t help much for your child’s higher education. Instead, you need a savings vehicle that will give you substantial returns after a long-term investment. If you want the best for your child, you need to start saving for their education from birth. After all, a good education is the best gift you can give.
The best approach to save for your children’s education is to put money into mutual funds. These are funds managed by professional portfolio managers. These companies invest their money in low-risk, medium-risk, and high-risk markets. You can keep the money invested for several years until your child reaches a college-going age. Then, you can top it up by getting a loan through the best loan app that you can find in the market.
4. Retirement Planning
Even on a low income, you need to plan for your retirement, especially if you are in the private sector with no prospect of a pension. One of the best schemes in India is the Public Provident Fund (PPF), run by the Government of India.
It is a long-term investment offering a good rate of interest that is not taxable. You can also take loans against the principal amount of your PPF after the third year of contribution. This type of withdrawal is like an instant cash loanwithout the high interest that private lenders charge.
You can Save and Be Financially Secure Even on a Low Income. Even low-income families can enjoy financial security with the right approach and careful financial management. Follow these tips for a happy and secure future for you and your family, no matter how much your income is.