How to Live on a Small Income

Whether you (or your spouse) lost a job, added a mortgage, have become swamped by bills, plagued by taxes, have added a child, or are saving for college, there are many ways to adjust to living on a decreased income.

*Create a Budget

Even though budgeting helps save money, many refuse to do it because of the large amounts of work and attention to detail it requires. Now, with easy online and phone applications like, budgeting has become easier than ever. is completely free and currently used by over a million people. Critics like Money Magazine, The New York Times, and PC Magazine rave about the easy-to-use site that is transforming the way money is managed and saved.

The program works by syncing all of your banking information (don’t worry, it’s completely safe) and then analyzing the data. Users no longer have to save receipts, pour over bank statements, or spend hours plugging in expenditures onto a spreadsheet. Instead, the program does everything automatically, creating a budget that categorizes everything into concise graphs, clever visuals, allowing users to see how their money is spent.

For those who are wary of using the latest technological programs, create an old-fashioned budget and stick to it. Discipline and persistence are essential, but by seeing your overall financial situation, you can then create a plan on how to be thriftier.

Incomes are mostly depleted by one of four main categories: mortgages/rent, utilities/necessities, food, and entertainment.

* Mortgages/Rent

Although housing and rental payments seem inflexible, there are various ways to cut costs and minimize the strain it has on your income.

1) Refinance

For those with mortgages, refinancing can be a good option if the economic and circumstantial conditions are favorable. Refinancing can lower monthly payments, create a lower interest rate, utilize and create equity, and help owners pay off mortgages faster. Before refinancing, make sure you understand the pros and cons of such a venture, and have a trusted professional help guide you through the process.

2) Utilize Tax Credits and Discounts

Both renters and homeowners can take advantage of numerous tax benefits. Pay attention to new tax legislation and go over your rent/mortgage information with your tax counselor before sending in your yearly tax information. Always save any tax-related statements, and remember to check government websites for free advice and tips relating to rental and homeowner taxes.

3) Have Tenants

For those overwhelmed by high rent/mortgage payments, renting out rooms to tenants can earn you extra income. College students are the perfect example of how to efficiently share living space and cut down on rent.

A few hundred dollars a month in rent can quickly translate into thousands of dollars that can be redirected towards your mortgage/rental costs.

Be imaginative about creating new space. Attics can be transformed into living dens, garages can be remodeled into small apartments, and unused basements can be transformed into habitable living quarters. If there is simply no additional room, share the space that is already available.

Government programs are also a great way to receive tax credits and financial stipends. Many foreign exchange-type programs pay up to $400 per month per student/individual that is hosted. There are tons of these programs looking for people willing to house someone, and it’s a great way to cut down on housing expenses.

* Utilities/Necessities

1)  Be Energy Efficient

For heat and air-conditioning systems, set up a program that lessens usages when people are outside of the house, and always remember to shut off lights, radios, televisions, and other electronic gadgets when they aren’t being used.

To maximize the potential of your cooling and heating systems, invest in insulation, quality windows, and door coverings that prevent your house from losing heat (or AC during the summer).

2) Utilize Payment Plans

Many electric and gas bills have various payment options for those who can’t afford expensive bills. Companies also provide payment plans based on yearly averages, where one fixed monthly payment is made based on an entire year’s estimated cost. Thus, instead of paying an extra $200 per month for heat during a cold winter, the difference will be evenly distributed throughout every month for the entire year.

* Food

1) Buy Groceries

Large sums of money are lost when people regularly eat out. The cost of one sit-down restaurant is equivalent to an entire week’s worth of homemade meals. If you don’t know how to cook – now is the time to learn.

2) Avoid Fast-Food/Coffee Shops/Buying Snacks

A quick stop at McDonalds for morning breakfast, a mid-afternoon coffee, and a candy bar at the gas station can add up to hundreds of dollars worth of expenses per month. Make coffee at home, buy candy in bulk from a grocery store, and avoid fast food and coffee shops – it will annually save you thousands of dollars.

* Entertainment

Just because you’re trying to save doesn’t mean you have to end your social life. Continue to have fun and enjoy yourself, but be wise with how you spend your money.

1) Have a plan

People get into trouble when they “indiscretionary” spend money. This means they are careless and reckless with their finances. Like budgeting, create a plan for your entertainment and follow it. Avoid being spontaneous, and reign in your tendencies for frivolous expenditures. Have people hold you accountable and communicate your intention to save money – this will encourage others to help reign in your spending habits.

2) Be Creative

Browse the web and local newspapers for free shows, gallery showings, theatre performances, and cultural festivals. Entertainment doesn’t always have to be expensive. Take advantage of your community’s free exhibits, parks, museums, and other social attractions.

3) Host

Instead of spending weekends out at the bar, host a party at your own place, and buy drinks at the grocery store instead of spending $12 per cocktail at an overpriced bar. Gatherings and house parties are often more fun than meeting up at a restaurant, and guests are often willing to bring beverages to share.

No matter what your income is, there are always way to cut down on costs and live more efficiently. It may seem impossible, but by following these tips you can manage your money to successfully meet all of your needs.