24 Financial Tips For Low-Income Earners

If you read personal finance books and blogs or listen to personal finance podcasts, it seems like the advice is for those not exactly in the 1% but who make pretty good money and have achieved some degree of financial success already. What about the rest of us? Where are the financial tips for low-income earners?

There are more than a few of us, after all.

7.6 million individuals were among the “working poor” in 2016, according to the Bureau of Labor Statistics. The working poor are people who spent at least 27 weeks in the labor force ( working or looking for work) but whose incomes still fell below the poverty level.

For reference, the 2018 threshold for poverty level is $12,140 per year for a single person under 65 and $25,100 per year for a family of four.

There are plenty of reasons a person may not earn what most of us consider a good salary. Society often attributes a low wage to lack of education, ambition, intelligence, or discipline. But more often, a low income equates to a lack of opportunity long before the job search even began. There is no such thing as an even playing field in America. 

And plenty of people enter into a career that they know is unlikely ever to make them much money. Some choose a job they love and find the trade-off worth it.

Either way, it’s tough to be a low-income earner in America. But there are financial tips that can help low-income earners achieve at least a comfortable financial situation.

Banking

Not everyone has a bank account but if you don’t, not only is life harder, it’s more expensive.

Open a Good Checking Account

Not all checking accounts are created equal. Plenty of banks charge fees for things like out of network ATM withdrawals, overdrafts, and falling below a minimum account balance.

A GOBankingRates survey found that the average American pays $7 in banking fees every month.

The solution to this is to find a non-traditional bank that offers free accounts. Chime is an online bank that charges almost no fees.

Millions of Americans are “unbanked,” meaning they don’t have a bank account at all. In some cases, people have been blacklisted by ChexSystems and can have difficulty finding a bank that will allow them to open an account. Chime doesn’t do a credit check or ChexSystems check on customers so the unbanked may find a home there.

If you prefer to do your banking at a physical location, choose a credit union over a bank. A credit union is a not-for-profit organization that serves its members and typically has fewer fees and better interest rates than a bank.

And a Savings Account

Some financial tips are universal, and this is one of them. Open a checking account to store the money you use for your bills and a savings account for the money you’re, the clue is in the name, saving. 

Saving money is easier when the money you’re meant to be saving isn’t mingling around having cocktails and flirting with the money you have for spending.

When you only have a checking account, your money is a little too accessible, a little too tempting. When the money is separated, some of that temptation is removed.

Chime offers both checking and savings accounts, and that’s another of our essential financial tips; keep things simple. Both accounts are in one place with Chime.

Automate Savings

We all have good intentions when it comes to saving money, but you know what they say about good intentions.

You absolutely intend to put some money into savings, but at the end of the month, there’s nothing left to save. This is where automation comes in. Paying yourself first is a pillar of personal finance. Paying yourself is just as important as paying your rent or car payment. With automation, it’s easier to pay yourself first.

Set up an automatic transfer each payday. Every time you get a paycheck, a certain amount of money goes from your checking account to your savings account. That money is safe before you get a chance to spend it; out of sight, out of mind.

How much money? Enough that it actually has an impact but not so much that you can’t pay your bills with the money left. Ideally, according to the 50/30/20 budgeting method, you’re saving 20% of your income to your emergency fund, retirement fund, or taxable investing account.

This financial advice is non-negotiable. Your financial future depends on your ability to save.

Get a Credit Card

Your credit score follows you around for life much like your Social Security number, and it’s equally important. You need a credit score, often a good credit score, to do everything from renting an apartment to buying a car. A credit card is a great way to build your credit and an excellent way to destroy it.

What does using a credit card responsibly mean? Not using it to buy things you can’t afford and paying off the full balance each month. It’s no more complicated than that. If you don’t have a ton of credit history, it can be tough to be approved for a card, but these credit cards are made for such people.

When choosing a card, look for one that doesn’t have foreign transaction fees (vital if you travel abroad or buy things online from companies outside the U.S.) or an annual fee. Some cards have annual fees, and in the right circumstances, it can be worth it, but if you’re on a low income, they probably aren’t worth it for you. Ideally, you can get a cashback rewards card which gives you a small percent back on each dollar you spend.

Spending

All of the financial tips in the world won’t help if you spend too much, this applies to both low income and six figure-earners. The bottom line is, how much you spend matters more to your financial health than how much you make. 

Create and Stick To a Budget

A budget is essential no matter what your income. Your budget shows you how much money is coming in, how much is going out, and most importantly, where that money is going. Create a Mint account and link all of your bank and credit card accounts.

Mint is easy and free to use. It will pull all of the transactions from those linked accounts. It will categorize them for you automatically. Mint is pretty accurate, but you may have to move some transactions to a different category.

Now go through all of the transactions and see what you can cut. Be ruthless. We all have spending leaks; Mint makes them easy to spot. Once you’ve done that, create a budget. We like the 50/30/20 method because it’s simple and works no matter your income.

This is make or break. Creating and sticking to a budget is the foundation of your entire financial life and in many ways, your whole life. You’ll make mistakes but dust yourself off and try again.

Don’t Be Penny Wise and Pound Foolish

Some people do crazy stuff to save money, like take lots of condiment packages from fast food restaurants instead of buying their own. Or diligently clip coupons to save a dime on toilet paper. But they think nothing of going out to dinner three nights a week or living in a three-bedroom apartment even though they live alone.

There is nothing wrong with saving picayune amounts of money on ketchup and toilet paper but saving those small amounts doesn’t have much impact on your net worth. If you want to save real money, it’s the major living expenses you need to keep low.

My apartment is two blocks on the wrong side of the tracks. Literally. It’s two blocks in the “wrong” direction of St Charles Avenue where the streetcars run in New Orleans.

But the neighborhood is safe, central, the apartment is newly renovated, and it costs me less than $1,000 a month. Keeping my housing costs so low has been the critical factor in allowing me to grow my savings and travel more which was one of my financial goals.

Ideally, your housing costs should be no more than 30% of your net income. This is unrealistic in some places, but the closer you can get, the better. If you can’t stay below 30%, you’ll have to make it up in other areas.

Find Extra Money

You went through your budget and made cuts, but you can still do better. And you don’t have to do it alone. Two excellent services will help you find extra money in your budget pretty painlessly.

Trim is like having your own financial assistant. The app will grow through your transactions, looking for recurring ones. Things like your music streaming service, gym, and dating site memberships. When Trim finds these kinds of transactions, it will message you asking if you want to cancel them.

If you do, Trim takes over. You don’t have to make any phone calls or scour a website looking for the “Cancel” option. Using Trim saved me about $70 a month and the service is free!

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Or try Earny for getting cash back with your online purchases.

Don’t Pay For Stuff You Can Get For Free

Chime will give you a free checking and savings account, and you can find a credit card with no annual fee, but that’s only the tip of the iceberg when it comes to not paying for stuff you can get for free. Here are some things you should not be paying for:

~Water: Get a reusable bottle and fill it up when you’re at home or see a water fountain.

~Your Credit Score: You can get a free one at Credit Karma.

~Your Credit Report: You can get free ones.

~Dates: Well, you can pay for them sometimes, but there are plenty of free, fun date ideas.

~Saturday Nights: Same as for dates. Plenty of free fun to be had on a Saturday night.

~Books: If you like to own your books, I get it, me too. But you can read books for free with a library card. Libraries have all sorts of awesome free stuff, not just books!

~A Financial Advisor: There are some people with such complicated financial situations that it’s worth the expense of hiring a financial advisor, but they’re unnecessary and unaffordable for most people on a low income.

~Cable TV: No one needs cable TV anymore with all of the available streaming services, most of which are far cheaper. This was a tough one for me as a sports fan, but you can find a lot more live sports on streaming services now than even five years ago.

~Lunch at Work: Come on! Buying lunch costs a fortune. Pack up some leftovers. Seriously, you’ll be amazed at the savings. If you don’t like to cook, get a slow cooker. You can make cheap, tasty meals with zero cooking skills in a slow cooker.

Mind the Creep

Not the creep at the bar, but you should probably mind them too. Lifestyle creep. Lifestyle creep is:

A situation where people’s lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.

You’ve cut your budget and taken other steps to save yourself some money. Don’t waste it! We’ll show you what to do with it in the Saving section.

Want to get your money under control?

This is our guide to budgeting simply and effectively. We walk you through exactly how to use Mint, what your budget should be, and how to monitor your spending automatically.

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Debt

Very few of us can say we are 100% debt-free, but when you’re not making a lot of money, debt is a terrible drain on your money and your energy. Let’s see what we can do to conquer debt.

Kill Credit Card Debt

Aside from payday loan debt or loanshark debt (the two aren’t that different), credit card debt is the worst kind of debt to be in for the same reason; the interest rate. Even a relatively low balance can spiral when you factor in an interest rate in the teens or higher.

Credit card debt is an emergency. Your priority is to pay it off like your hair is on fire.

Luckily there are ways to get out of credit card debt quickly.

Balance Transfer Credit Card: These cards have an introductory period typically ranging from 6-24 months. During that time, you’re not being charged interest. Transfer the balance from the old credit card to the balance transfer card. During the introductory period, every penny you pay goes to paying off the balance, saving you money on interest.

Personal Loan: Get a loan from a company like Upgrade or Earnest and use it to pay off your credit cards. The new loan has an interest rate, but if your credit score is good enough, it will be lower than the rate on the cards.

Revolving Line of Credit: Tally gives users a revolving line of credit which is used to pay off credit card debt. Like a personal loan, if your credit score is good enough, the rate will be lower than your credit cards. Tally can also help you create a debt repayment plan using the stacking method, paying off the cards with the highest interest rates first.

DIY: To qualify for all of the above options, you need a pretty good credit score. If you don’t get approved, you can still create a plan that will help you pay off your credit cards using the stacking or snowball method. 

Expel Student Loan Debt

When we think of those burdened by student loans, we often think of Millenials, but the Millenials aren’t alone. 

One generation of Americans owed $86 billion in student loan debt at last count. Its members are all 60 years old or more.

Do you know what happens if you’re collecting Social Security and still haven’t paid off federal student loans? The government garnishes your benefits. Student loan debt isn’t as problematic as credit card debt because the interest rates are lower, and there are programs designed to help manage it (federal student loans). But it’s still debt and certainly nothing you want to carry into your dotage.

There are companies like Earnest and SoFi that specialize in refinancing student loans.

Refinancing your loans will lower your interest rate (depending on your credit score) which will save you money.

Declare Bankruptcy

Bankruptcy should be a last resort for dealing with debt. The process isn’t free, it’s cumbersome, and it will ruin your credit for years. And some types of debt, including student loans, will not be forgiven under bankruptcy.

That stated if you really have no way out of a crushing amount of debt, bankruptcy is an option.

Making More Money

We all have things we have to pay for and some things we want to pay for, within reason. At some point, there isn’t anything left to cut, so we’ve got to find ways to make more money.

Get a Better Job

You don’t have to go to college to land a job that pays well. These jobs will enable you to earn a good living without going to college.

Get More Education

We’re not necessarily advocating going to college or going back to college, but there are plenty of ways to get additional education online. 

Will what you learn land you a regular 9-5 job? Not always. Some employers will always prefer a candidate that has a degree. But there are plenty of skills you can learn online and use to land freelance gigs. You can use freelancing sites like Upwork and Guru to build a side hustle that can turn into a full-time career.

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Negotiate

Ask your current employer for a raise. Go about it smartly. Know how much you should be making and why you deserve more. If you don’t get what you want, polish up your resume, start networking, get yourself on LinkedIn, and start looking for something else.

People that change jobs every two years make 50% more throughout their careers than those who stay longer.

Get a Side Hustle

Side hustles have become part of personal finance cannon now, but it’s not without reason. Because so many side hustles can be done online or on your own schedule, it’s easier than ever to make extra money with one, so there is zero reason not to.

Whatever your skillset or free time, there is a side hustle for you. 

Saving Money

Saving money means more than having something tucked away in a savings account. That was only the start.

Build an Emergency Fund

Having an emergency fund is important for everyone but especially for those who don’t make a lot of money. It’s expensive to be poor in America, and an emergency fund is a strong barrier between you and disaster.

The ideal emergency fund contains 3 to 9 months worth of essential expenses, but we know that isn’t realistic when you’re not making a lot of money. So the goal is $1,000.

Remember all of those expenses we cut and the extra money we’re making? This is where it goes. Your $1,000 fund should live in your savings account where it’s easily accessible.

Invest in Retirement Accounts

There are two general kinds of investment accounts; tax-advantaged and taxable. Retirement accounts are a way to minimize taxes legally. The best place to start is an employer-sponsored 401k which is usually a choice of a few mutual funds. If your employer offers matching funds, that’s free money so contribute at least enough to get the match.

If you don’t have access to a 401k, you can open an IRA yourself.

Invest in a Taxable Account

Retirement accounts are for long-term investing. With some exceptions, you can’t touch that money until you’re aged 59 1/2. That’s a good thing! It gives compound interest time to work its magic.

But you want to invest in a short-term account too. By short-term we mean the money you invest will be untouched for 5 to 10 years. You might need the money for a down payment on a home or to start a business. But the money in any investment account should be left to grow for at least five years.

We love Betterment. There is no minimum. If you have $1, you can start investing with Betterment. And you don’t need to know anything about the stock market.

Put your money in, set your asset allocation, and you’re done.

If you’re skeptical, read this. There is no way to grow your wealth on a low income if you’re not investing, and investing regularly. This is another job for automation. Set up monthly contributions.

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Financial Tips for the Rest of Us

We aren’t all destined to be rich and maybe being rich isn’t all it’s cracked up to be. Mo’ money mo’ problems after all. But that doesn’t mean we’re destined for a life of eating ramen and living in a hovel working until we drop dead.

If you follow these financial tips, you can live a comfortable life that millions of people throughout the world would envy.

Bonus Financial Tips

If I knew when to shut up, I’d never say anything so despite the already War and Peace length of this; I couldn’t resist adding a few more financial tips.

Be Generous

If there are causes you care about, but you don’t have the extra money in your budget to donate, donate your time. Loads of charities value your time and efforts as much or more than your money. Writing a check is easy. The heavy lifting is hard, and a lot of people don’t want to do it.

Don’t Deprive Yourself

You work hard for your money. If you’re in a low-wage job, you may work a lot harder than people making ten times your salary. You’re allowed to splurge once in a while.

Educate Yourself on Personal Finance Matters

The amount of money you make has nothing to do with whether or not you’re good with your money. Educate yourself on personal finance best practices. Seriously, everything you need to know to be good with money is on LMM, and it’s all free. 

If there’s a topic you want to learn about, use the search function on the site to find it. There is bound to be a podcast episode or article that will help. If not, email us and let us know. We’ll cover it.

Get Financial Friends

The people you surround yourself with have a tremendous impact on your life, financial and otherwise.

Show me your friends and I’ll show you your future.

Find at least one financial friend, someone who has the same financial goals that you have. They’re a great sounding board and can keep you accountable.

It Gets Better

It’s hard to escape poverty in America. If you’re born poor or find yourself poor, there is so much working against you. But things can get better. You have to do almost everything right, which is unfair and if we could fix it, we would.

We can’t, but we can do this. We can give you the tools and financial tips we used to improve our financial situation. And we’re cheering you on, even if it seems like everything else is against you. Keep going. It gets better.