couple investing money on a low income
Budgeting & Saving

You’re living within your means, but you don’t really feel like you’re living. You find it easier to spend than save. Maybe you feel like you’re not earning nearly as much money as you should. It can be hard to prioritize saving, or any financial priorities, over simply just staying above water and trying to enjoy a weekend every now and then when you’re making a low income or minimum wage. How do you start saving and budgeting money on a low income? Can you really build wealth and invest with a low income?

“The order of operations when trying to build wealth is important,” says LendingTree’s Millennial money expert Sarah Berger. “You hear all this advice about what you should be doing with your money, but when you’re making minimum wage, you don’t have money to dedicate to all of those priorities at once.”

These mixed messages she says, are one of the biggest challenges for anyone earning a low income. How do you get started building wealth when you don’t know where to start? What are the best financial moves to make when every dollar matters? Below are four steps to start saving and investing money with a low income—in the order you can make them to help you get the most out of each financial move.

From the experts—how to prioritize your financial goals when budgeting on low income

As long as you can live within your means, you should have the ability to save and still make big financial moves over time. Berger says for most people earning a low income, they should prioritize their financial goals in the following order:

  1. Establish a healthy emergency fund
  2. Pay off high-interest debt
  3. Build a retirement for the long-term
  4. Pay off smaller, low-interest debt

If you’re able to wiggle your budget even a little, you can follow these steps to help you build wealth over time.

1. Starting an emergency fund

“The #1 thing you should do when you start making money is to establish an emergency fund,” says Berger.

An emergency fund is savings you build that can help cover costs from a job loss or reduction of income, a medical emergency, a major home or car repair bill—anything that life could potentially throw at you.

Financial experts will give you different answers when you ask how much should be in your emergency fund. Some may tell you to start with a goal of $1000, 3 months of expenses, 6 months of expenses, or even a full year of spending.

You’re not alone if the idea of saving even $1000 is intimidating (let alone several months of expenses!). A 2020 MagnifyMoney survey found that more than 1 in 4 American’s don’t have $1,000 in savings.

It’s okay to start small and build your emergency fund with what you can afford over time. Consider starting with a savings goal of $400. Then, challenge yourself to the next milestone that makes the most sense for you.

Remember to create your emergency fund using a bank account that’s accessible, so you’re able to access it when you need it.

Berger says that in addition to helping you be financially prepared, emergency funds help to keep people out of more debt than they need to: “If you don’t take this first financial step you could fall into this trap of the revolving door of debt, which is hard to get out of once you’re in it.”

Instead of charging a $400 car bill on your credit card and paying extra in interest, you can cover the expense in cash. This way, you don’t have to pay any interest charges, and you avoid unnecessary debt.

Read More: How Much Should You Save Monthly

2. Paying off high-interest debt

Make a list of any debts you have. Include the balance, the interest rate, your monthly payment, and if available, what the current payoff amount is (You might need a calculator for that). Which of your debts have the highest interest? Paying off these debts, says Berger, is your next financial move.

“High-interest debt is the kind of debt that can add up over time and can be difficult to get rid of.”

First focus on paying off the debt that is costing you the most money. Then shift your focus to the smaller debts. If possible, try not to add more debt than what you currently have, so you can save in the future rather than continue to pay off debt.

Read More: Pay off Debt Using a Debt Payoff Plan

3. Build your retirement

If you’re not currently contributing to a retirement account through your employer at this stage, start making contributions. If you’re able to squeeze it in your budget, try to contribute at least as much as your employer matches in contributions.

Berger says that even if it’s just a few dollars a week being taken out of your pay, your retirement savings adds up, “You might not think that you’re making that big of a dent in your retirement fund, but you want to allow your contributions to compound over time. The earlier you start, the better off you’ll be.”

4. Pay off lower interest debt

The last on the list of financial priorities for budgeting with low income is to pay off your smaller, low-interest debt. Until you’re ready to pay these debts off aggressively, just work on paying your monthly minimum. These debts are going to cost you the least amount of money, compared to the higher-interest debt you want to pay off faster.

Read More: 7 Ways to Manage Debt

While this list of financial priorities is not comprehensive and won’t cover everyone’s unique financial position, following this order of financial goals is likely a great place to start when you’re figuring out how to build wealth with the money that you’re earning.

Low cost, easy ideas to invest with a low income

So maybe you’re just looking for ways to start investing. Even if you don’t have a ton of extra money to drop into investment accounts, there are still ways you can earn small returns to make your money work for you:

  • Many people use Acorns to invest small amounts of money as a micro-investor: “You’re likely not going to get rich off it, but it’s about building that healthy habit and getting yourself used to it. At the very least I think it’s beneficial to get in the habit of investing and saving regularly,” says Berger.
  • When saving any amount, consider depositing that money in a High Yield Savings Account or CD. These types of accounts usually have low returns but are often the most accessible and lowest risk option when figuring out where to put your money.
  • If you’re looking to start investing but not ready to dive in, research what it’s like to invest using a Roboadvisor. Roboadvisors, like Wealthfront, automate a lot of the decision-making in investing at low fees that can help beginner investors dip their toes in the water.
  • Also consider asking your employer to see if you can purchase stock with the company. You may be able to take advantage of special program perks and discounted fees.

Saving money and budgeting on low income is easier said than done

The financial goals outlined above are great ways to focus your money to build wealth. They’re also easier to accomplish when you’re able to live within your means and not have to make tough choices with your money.

Financial stress is real. If your finances are causing you anxiety, fear or anger, it’s tempting to compare yourself or avoid thinking about your finances altogether. You might be making major sacrifices while someone you know from another life is on their third vacation this year.

Focus on what you can change. Managing money at any income level is hard, but it is definitely harder when you’re not earning what you’d expected or what you need. Income can often feel like a status symbol that separates us out from others. Remember that you define success for yourself. You decide what’s most important in your life; money simply allows you more choices to live that life. But making smart financial moves at any income level now can help you live the life you want in the future.

Read More: Financial Stress & Navigating Money Anxiety

How to Stop Living Paycheck to Paycheck

10 Ways to Reduce Your Monthly Expenses

This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.

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