by Richard Isava | Dec, 2022
Low-income earners often think that saving money and investing is only for the wealthy, but this self-defeating thought process is just one barrier to achieving true financial freedom. No matter your income level, building wealth is possible—though it will take strategic planning to get there.
For those who are working with limited funds, the dream of financial security can seem unrealistic, and so some don’t even bother trying. However, with proper planning, you can build wealth with limited income. Follow these tips to shift your perspective and learn how to reach your financial goals when money is tight.
Improve Your Skills to Increase Your Earning Potential
One of the easiest ways to improve your financial situation is through skill improvement. If you feel you do not earn enough right now to reach your financial goals, improving your skills can help you land a better-paying job and/or use your newfound skills to develop another income stream. Rather than continuing to struggle to save on a low income, skill development serves as the pathway to a higher-paying position.
Conventional investing advice tells us to begin investing by setting aside a certain percentage of income every month. However, for those who earn a low income that is not always the most practical advice. Before someone with low income considers investing, they should take an objective look at their current career field and research ways to increase their salary. For example, you can look at colleagues who are in higher-paying positions at your current workplace and gain an understanding of what skills and experience are necessary to earn at that level.
Once you know what is required, decide if that is something you have the time to pursue and make it a part of your plan for increasing your income. Understanding what is attainable is the first step in making a plan for achieving it. In the short-term, consider taking on a part-time job during evenings or weekends to increase your income or jumpstart the transition to a different and more lucrative line of work.
Use Banking to Your Advantage
Another way to save money on the road to wealth creation is to bank strategically. Traditional banks are profit-driven, and often, these profits are gained through account-related fees paid by customers. If you have limited income, look for banks that offer checking and savings accounts with reduced fees, allowing you to save what you can without worrying about losing money each month if you do not meet certain account criteria. What you save in fees can amount to thousands per year.
Don’t Overlook Employer Matching
If you are lucky enough to work for an employer that offers retirement account matching, you should take advantage—this is one of the easiest ways to save for the future. An employer-sponsored retirement plan essentially doubles your retirement income without requiring you to do anything extra.
Larger companies tend to match between 50 percent and 100 percent of the income that you invest in your retirement plan. Some employers do this match immediately, while others require you to be vested in the company for a certain period before matching begins. If you are working with limited funds, start with the minimum contribution and gradually raise it over time. Eventually, the goal is to reach the maximum contribution percentage and have your employer match at 100 percent.
Employer retirement matching is essentially free money, and anyone trying to build wealth should not leave that on the table. You will not regret saving now come retirement age.
Start Small and Keep Building
No matter your income level, saving and investing are extremely important components of your financial well-being. Your financial future starts with creating a plan, which can help to give you a clear picture of what actions you need to take and when. Building wealth on a low income is not easy, but it is a possibility as long as you make it a priority.