by Maurie Backman | Published on Sept. 22, 2021
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Many low-income earners don't have money in savings. Here's what to do if you're one of them.
Having money in a savings account is important. Without cash reserves in the bank, you might easily land in debt when an unplanned expense creeps up on you. Or you might risk losing your home or vehicle if you lose your job, can't pay your bills, and don't have any money to fall back on.
But a new report by the Consumer Federation of America reveals something concerning. Among people with an annual income below $26,267, only one-third have a savings account. And those with savings only have a median amount of $1,300 in the bank.
As a general rule, it's a good idea to have enough money in savings to cover a minimum of three months of essential living expenses. Now if you don't have any money in savings right now, you're not going to be able to save three months' worth of bills in a matter of weeks. Rather, it will likely take a fair amount of time for you to build a solid emergency fund. But here are some steps to take if you're currently sitting on no financial cushion at all.
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If you're a lower earner, you may already be living frugally and stretching your income as much as you can. But putting yourself on a budget may reveal ways to cut back even more.
You can create a budget by listing your current bills and reviewing your recent checking account or credit card statements to see what they've been costing you, on average. Once you have them mapped out, you can compare those bills to your income. If there's no room left over for savings, you can then re-examine your spending.
Maybe it's possible for you to save $20 a month by downgrading your cellphone plan. Or maybe you can carve out $40 a month by doing a little more research and meal planning before hitting the grocery store. All of these small changes will add up over time, so if you need to take the slow-and-steady approach to building some savings, so be it.
When you run into periods when you can't cover your bills, you may be tempted to whip out a credit card. But it's easy for credit card interest to accumulate quickly, leaving you on the hook for higher minimum payments that limit your ability to save. If you really need to borrow money in a pinch, see if a personal loan makes more sense. It may not, depending on the sum you have to borrow and the interest rate you qualify for, but it's worth looking into.
If you have to fall back on a credit card, aim to find one with a more favorable (meaning, less high) interest rate. Better yet, see if you qualify for a card with a 0% APR introductory rate. That way, if you pay off your debt quickly, you won't rack up interest on it.
When you work full-time, holding down a second job may seem impossible. But if you can push yourself to get a side hustle during periods when life isn't as busy, you'll bring yourself that much closer to having savings to fall back on.
Keep in mind that your side gig doesn't have to eat up a lot of your time. If you only have two hours a week to drive for a ride-hailing service, consider doing that. If it earns you $30, well, that's $30 you didn't have before.
Going without savings is dangerous. If you're a lower earner, building savings may not be easy. But if you try your best, in time, you could end up with a nice chunk of cash to fall back on -- not to mention more peace of mind.
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