It’s Friday and you are pretty happy to get your paycheck. You’ve been waiting for it for a week or even two. You rip it open and after all the deductions the amount left seems small… really small you feel a little defeated and you think, how to save money with a $20,000 salary? Is it even possible?
How to Save Money with a $20,000 Salary – The First Step
If you want to be successful at saving money, regardless of how much money you earn each year, you first need to have a goal.
I’m not talking about a budget, although that’s important too.
What I mean is a reason to save – a goal.
Why are you saving this money?
Is it to put kids through college?
Is it for retirement or to buy a house?
Or do you just want to have plenty of savings in case you have an emergency?
Maybe it is even for a nice vacation to somewhere you have always wanted to travel.
The reason isn’t important.
What is important is that you have a goal that you are working towards.
It could be more than one thing, but without this goal and without being able to visualize it, you will never get there.
So, before you do anything else give some real thought as to why you want to save money and what you are saving money for.
Figure Out All of Your Expenses and Income
Here comes the budget part.
Now that you know why you’re saving money before you can do so, you need to determine what your actual expenses each month are and how much income you are bringing home after deductions.
The income part is pretty easy.
Just look at your paycheck stub or the online payment system your employer uses.
When it comes to expenses, I’m talking about the ones you have to pay every single month.
That includes things such as:
- Rent or mortgage payment
- Insurance – car, home, rental, and so on
- Utilities – these can change month to month but get a good monthly estimate
- Phone and internet
- Gas for your car
- Car payments
These are all things you most likely can’t live without unless you can walk to work or take a bus.
Then you have expenses such as food, clothing, school supplies for kids.
These expenses can vary and often can be reduced.
Finally, you have expenses that you can live without such as going to the movies, eating out, and coffee out, and other entertainment.
Hopefully, your expenses are less than your income or are pretty close at least.
Now, you need to spend some time deciding where you can save money for each of your expenses.
Some you might not be able to change right now, and others you might be able to trim down or eliminate.
Get Rid of Credit Card Debt
Once you figure out where you can cut some of your expenses, you will want to take that money and start paying off any high-interest credit cards you might have.
Do be sure to put $1,000 or so in an emergency fund before you start to pay off your debt.
That way if something comes up you will have the cash to deal with it instead of having to use a credit card.
There are lots of ways to pay off credit card debt, but one of the easiest is to take any money you have saved after trimming your expenses and pay off the card with the smallest balance first.
Once that card is paid off, use the minimum balance you used to pay on it and add that to the extra money you have each month and pay off the card with the next lowest balance.
Continue this until you have all of your cards paid off.
Then all of that money can go directly into savings and investments.
If you have a few credit cards, another way you might consider paying them off is with a personal loan.
While it might seem crazy to take out more debt, with a personal loan you can consolidate all of your credit cards into one payment that typically has a lower interest rate.
That way, you have one, smaller payment each month instead of several.
Save Your Tax Return Refund
Too many people look at their tax refund as a free payday or a gift from the government.
Well, it’s not.
It is money you already earned and paid to the government.
Remember – it is your hard-earned money, so treat it as such.
Take this money and immediately put it into savings or an investment account.
Just think, if you’re getting back $500 or $1,000 you can bump up your savings quickly by just doing this.
If you find your tax refund is too big, talk to your HR person to find out how to keep more of your money each paycheck.
You really shouldn’t be getting a huge tax refund.
It means you have been giving the IRS an interest-free loan all year long.
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Consider Moving Closer to Work
Housing and car expenses tend to take the most out of your paycheck each month.
Depending on your current living situation, consider moving closer to your job, so you don’t have to drive.
This can save you money on car payments, insurance, car maintenance, and gas.
This isn’t too difficult to do if you live in a good-sized city.
If giving up your car isn’t an option, consider downsizing or moving to a cheaper location.
Roommates aren’t a lot of fun, but if you own your home and can rent out a room, it can reduce your housing costs and utility costs quite a bit.
The key to how to save money with a $20,000 salary is to understand your expenses and your income. Once you do, you can determine where you are wasting money and how to use that money to pay off debt and then save.
Once you take that first step, the rest is easier than you might think.