It’s very possible to live well on a small income and flourish. Live your best financial life with the right plan and money mindset.
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Your income level does heavily impact your life choices and standard of living.
This, however, doesn’t mean you can’t live well on a small income.
When we got married in 2015 our income was £15k a year between the 2 of us.
Don’t know what you thought of that but for us, that was pretty low.
But we survived, and not just on rice and beans either.
We made the most of what we had, and this is how.
Table of Contents
How To Live Well On A Small Income
The biggest money lesson we learnt was it’s not how much money you earn, it’s how much you keep that matters.
I’m sharing with you really practical tips on how you can keep more of your “small” income.
Think about it: who’s better off, the one who earns £50k and lives on £50k, or the one who earns £20k and lives on £15k?
One may argue that quality of life might be different. But financial peace and financial health are more important to me.
Saving £5k per year is much better than £0 any day.
Here are 12 action steps for you to take to live well on a small income.
1. Calculate How Much You Cost
Do you know how much it costs to be you?
In order for you to live the life you want to live the way you want to live it, how much do you need?
In other words, what are your living expenses?
Many people know their annual income (pre-tax mostly), the cost of fuel and how much the latest iPhone costs.
But most have no real idea how much they live on month on month.
This is the most important figure to know as it is how much it costs to be you.
Take the time to calculate what your living expenses are.
Calculating Your Living Expenses
To calculate your living expenses you need to know what your outgoings are.
Every transaction. Every penny counts.
A good place to start is by looking back over your bank statements.
I’d personally suggest you look back over 3 months.
Calculate how much you spent in each category, add up the total and divide by 3 to get the monthly average.
Fear not, I’ve built an expense tracker for you to get started, it’s free, so no excuses.
The best part, all you do is fill out the amounts in the right categories and the calculations happen for you.
2. Know Your Financial Position
Knowing your financial position will empower you to make the right decisions for your financial health.
This is an area most people who live on a small income choose to bury their heads in the sand.
Actually, maybe everyone does? Either way, it’s important to know where you stand.
Simply do this by calculating your net worth.
This is the measurement of the value of your assets against the value of your liabilities.
This exercise alone will help you know how much debt you really owe, how much value you actually own.
It’s easy to miss these if your cash flow is tight, but it’s good to have a big picture of where your finances are.
3. Be the CEO of Your Money
To live well on a small income demands that you be in control of your money.
In fact, no matter your income level being in control of your finances is a must.
Be the CEO of your money.
CEO’s are thought leaders and always thinking ahead. Be the same with your money.
Being the CEO of your money goes beyond tracking expenses, although does include it.
It’s mainly about having a vision for your finances and where you’re aiming to go.
How To Set Financial Goals
Think of your life goals and things you’d like to achieve and set money goals that fit those life goals.
For instance, if the goal is to get a professional qualification to change careers you set the money goal that’ll pay for that.
Another angle is to take a look at your financial position I spoke of earlier and think about what you want to change.
Secondly, break down your money goals into baby steps.
For example, say your goal is to save £15,000 to buy a house in 5 years time.
That’s £3,000 per year, which is £250 per month or ~£58 per week.
4. Have A Budget You Stick To
If there’s one thing you must do, it’s this!
People see a budget differently but for me, a budget goes beyond just making sure the bills are paid.
My budget is a plan for my money.
If you want to live well on a small income, this is how.
Having a budget gives every one of your pennies a purpose.
Carrying on with the previous example, a £15,000 savings goal over 5 years is £250 per month.
When you have a budget, you put a plan in place for that goal to become a reality.
That’s the power of a budget.
5. Track Your Expenses
Tied to having a budget is tracking your outgoings.
This is how you make sure you’ll stick to your budget.
It enables you to identify areas where you’re simply wasting money.
Plus you’ll be empowered to make some life-changing decisions.
You can find areas where you can repurpose money.
The Power of Tracking Your Expenses
When we did this we were shocked we were spending almost £500 per month on food!
This included groceries, takeaways, eating out, you name it.
Long story short, it was because we didn’t plan our meals.
Plus we ordered takeaway whenever we felt like it, which was a lot of times per week.
We set up a weekly food schedule and since then we’ve been spending around £250 per month.
This is basically us giving ourselves a pay rise of £250 per month!
That would NOT have been possible if we didn’t track our expenses.
Oh, by the way, you can use our free expense tracker for this too!
6. Build An Emergency Fund
An emergency fund is simply money you have saved for when emergencies come up.
I think of this as my personal interest-free credit card.
When living on a small income an emergency can easily rock your finances.
Imagine if something important in the house breaks or stops working.
Or if something impacted your pay, either by redundancy or if your working hours were cut.
In any of these cases, an emergency fund will be what you’d use.
I’ve gone into a lot of detail about emergency funds explaining how much to have and how to build one.
7. Have Sinking Funds
The other savings bucket to have is called sinking funds.
Sinking funds are savings for the short term needs you’ll have.
The difference between emergency funds is that with sinking funds you’re saving for a known future expense.
We have three types of sinking fund uses.
First, we use it for large purchases such as a kitchen appliance or gadget.
Secondly, we save up for annual bills such as insurances and tax.
And finally, money for special occasions including birthdays and Christmas.
Sinking funds is how we make sure these various elements don’t throw us off track financially.
Honestly, sinking funds are your best friend to live well on a small income.
8. Consider Buying Pre-Owned
- unused and unwanted items
- more quality for the cost of from pre-owned than brand new
The pre-owned market is booming and for good reasons.
You can find a good quality product for a fraction of the brand-new price simply because it’s pre-owned.
There are people with items they rarely or never wear, use or utilise that end up being sold.
I remember putting one of my guitars up for sale as I was no longer using it, it was gone within a day.
Plus I’ve found some good quality camera gear from previous owners.
Ultimately, the aim is to say you don’t have to buy brand new all the time.
You can save yourself the money by buying top quality at a fraction of the price.
9. Save On Your Food Shop
Earlier I told of our food spending experience.
Trust me, planning your meals is a game-changer.
You’ll shop for the food you know you’re going to use and cook.
First, make a list of your meals for the next week.
Secondly, make a shopping list of things you need for those meals that you currently don’t have.
Then, go shopping.
To make further savings, shop at budget-friendly supermarkets like Aldi.
10. Let’s Talk About Debt
Debt is a way to get something today and pay for it later.
But I also see it as robbing my future for a present desire.
The money that will go towards debts could be money you save or invest for you instead.
In Debt
If you’re in debt, make a plan to repay your debts.
Calculate the total of all the minimum and mandatory payments you have to make per month.
Analyse the impact that has on your monthly budget and see if you need some assistance.
I’d encourage you to call your lenders and try negotiating a lower interest rate or other offers.
Be clear about the terms they’re offering for those offers and take them up if they fit your situation.
If you need some support with your debts, speak to someone.
No Debts
If you aren’t in debt, avoid it as much as possible.
Adopt the save now and buy later approach.
If you’re thinking of taking on debt analyse the impact it will have.
Don’t just think about whether you have enough money for the monthly payments.
Think about what you’ll have to give up to pay for the debt.
Usually, the casualty in this scenario ends up being your money goals.
11. Don’t Shy Away From Investing
Investing has a part to play in your life no matter your income.
In fact, thanks to technology these days you can start investing with as little as £1.
Investing is about making your money work harder for you.
In other words, you invest money with the hopes to make more money with it.
When we started investing we started at £50 per month and this was as much as we could do.
3 years later this had grown to around £2,100. If you do the math £50 x 3 years is £1,800.
This highlights one of the biggest reasons to invest no matter how much you have, compound interest.
12. Mindset Shift
Your mindset is everything when it comes to money.
I’ve given you so many tips and action steps on how to live well on a small income.
Changing our money mindset changed everything.
We learnt that abundance is not an amount in your bank account, it’s a mindset.
If you have a roof over your head, food to eat, furniture around the house, people who love you, you’re living in abundance!
You have more to be grateful for than you probably realise.
Don’t let the amount of income you have make you blind to that
Our key money mindset lessons for you:
- It’s not how much you make, it’s how much you keep that matters
- Don’t keep up with the Joneses, focus on your goals
- Make financial decisions that will serve you well in the future
- Have money allocated to fun and personal care
- Live on less than you make
Take Action
Don’t put it off, do something today.
The first 7 steps are in chronological order, but you can do whichever way works for you.
Save this for direction and inspiration going forward.
Share this with your friend, family, or partner and empower them to live well on a small income.
Check out our Ultimate Money Plan to get in control of your money and smash your financial goals
Let us know how you’re getting along by getting in touch with us, we’d love to hear from you
Knowledge is powerless without action
So take action, and take care
Thando