How to save money on a tight budget – 5 proven ways

There is a saying that money can’t buy you happiness and that is true to some extent. However, I do know that I need it just enough to put food on my kitchen’s table, buy clothes for my kids, and have extra when I am no longer able to work.

What I am about to share to you is not a rocket science and something that I have been doing for the past 12 years. These principles on how to save money on a tight budget apply to whatever your occupation, social, and income status are.

You do not need to have a full or part-time job to save money. If you are a high school or college student but receiving a monthly support from your parents or financial aid organizations, you can save and grow that money. If you are unemployed due to health or any similar issues but receiving some sort of financial assistance on regular basis, you can also follow my suggestions.

My recommendations will not make you rich quickly but with time and discipline, you will be surprised how big your nest will become.

Here are my five tips on how to save money on a tight budget:

1. Live below your means

Live Below Your Means

I know…I know…You have heard this statement a million times, but the truth is you cannot have extra money if you spend more than what you earn. That is just how the math works in the real world. I do wholeheartedly agree though that it is easier said than done.

For some people, live below your means could mean they just need to tweak their lifestyle a little bit and they are there but for many it might mean:

  • I can’t go to watch movies at the cinema as often as before
  • I can’t buy every newly released DVD anymore
  • I can’t watch my favorite series on my cable anymore
  • I need to reduce my frequency of eating out in a restaurant
  • I need to lower my phone bills
  • I can’t drink that beverage everyday anymore
  • I can’t buy that $50K car I really want
  • I can’t buy that $500K house in a nice neighborhood
  • I can’t buy that nice boat I really want
  • I can’t go to that exotic island anymore for my annual vacation
  • I can’t be a member of a private golf club anymore

Does live below your means mean I cannot enjoy all the things that this world can offer while I am still making money? No, not at all! What I am saying is that you may need to wait until you can do or buy those things.

I think it is prudent to wait in anticipation of all the things you can do in the future without having to worry every day about your future’s savings. The difference between your income and expense and how you grow and manage that cash will determine how big your nest will be.

Obviously, the ideal way is to increase your income and reduce or at least maintain your expenses so that the difference will become bigger. The earlier you are able to do this, the sooner you can possibly enjoy the above list while still investing for your future.

Got it? Alright, let’s move on to the next principle.

2. Pay yourself first

Pay yourself first

This is another concept that has increasingly become popular. If you don’t know what it means, pay yourself principle simply means giving the money to yourself before you use it to pay someone else. For example, you put a portion of your income straight to your savings or investment account before you pay your bills.

Too often people pay themselves after they have paid all their bills, debts, and expenses and therefore, leaving them with little to no money at all, which is commonly known as living paycheck to paycheck.

Let’s answer the most frequently asked question about this concept, shall we?

What if after I pay myself with the amount I want, I do not have enough to cover all my expenses? The answer to this question requires a thorough look at your financial statement. You read that correctly! I did write financial statement.

Whether you are a single or married person, you need to have a personal financial statement, which is basically a report that shows how much you are making and where your money goes. I can promise you that you do not need a Finance or Accounting degree to make a personal financial statement.

Unless you are seeking a big loan from a bank, which requires a professional looking financial report, all what you need to do is to create a simple spreadsheet. My wife and I created our own template using an excel spreadsheet. If you do not have an excel spreadsheet, you can use a free Google sheet. You can obviously purchase a software or an app that can link to your bank account or credit card if you want it.

Regardless the methodology that you choose to create your financial statement, you must have a clear understanding on how much money you are bringing home and how you are spending it.

Let’s go back to the question of not having enough to cover your expenses. For your personal financial statement, let’s assume that you set aside 30% of your income immediately, which leaves you 70% to pay all debts and expenses. If you find yourself short of paying them, you can do the following:

  1. Go through all your expenses and look for something that you can cut. Ask yourself if you can live without it or not.
  2. Consolidate your debts if at all possible with a lower rate to bring down your monthly payment. If you have a good credit history, you may be able to obtain a personal loan with low interest to pay several of your outstanding debts.
  3. Look for immediate opportunity to increase your income
  4. If option “3” is not feasible and you have done your very best on option “1” and “2”, your next move is to reduce your 30% income allocation. Perhaps if you reduce it to 20%, you can now cover everything with 80%.

After you fully understand where your money goes, now is the time to execute your budget plan.

3. Allocate your income to several buckets

Allocate your income

By now you have your own financial statement where you know the in-and-out of your money. How do you ensure everything will go as planned?

Well…let’s make sure you get paid first by doing the following steps:

1. Set up 4 separate bank accounts:

  • Savings : This is where your money will grow modestly and safely
  • Investment : This is where your money will grow significantly over time
  • Charity : This is the fund where you can help other less fortunate people
  • Regular expenses : This is where you pay all your debts and daily expenses

I recommend that you only use 1 or 2 financial institutions for your own convenience and allocate 10% each for Savings, Investment, and Charity account. The balance (70%) will go to your regular expense account. Again, if after careful examination you determine that 70% is not enough, you can increase it.

2. Set up a direct deposit from your employer to each account. Why? This is to help you build a habit and reducing the temptation of taking money out from yourself.

Now comes the tedious part, you need to track your spending daily against your expense buckets. If you hardly spend any money daily, such as eating out or shopping, there is really nothing to track. Most of your expense categories should be somewhat consistent, such as your rent/mortgage, car payment, student loan, gym membership, phone bills, and so on.

Let’s discuss the next principle that in my opinion is the hardest among all.

4. Hold off Instant gratification / Stick to your budget

Hold off instant gratification

If you ever run a business, you know how important it is to control your overall expenses, such as your fixed and variable costs and your overhead. They will affect your cash flow negatively if you cannot manage them well.

It is the same thing with your personal financial statement. You must have a discipline and self-control to follow your budget plan. If you have reached your $100 allowance for eating out, you need to stop. Remember that it will impact your bottom line.

I also recommend that you allocate a small portion in your regular expenses list for “unforeseen category”. The only time you use this fund is for something that are not in your known expenses list. For example, an oil change or new tires for your car, a birthday or wedding gift, a parking ticket, co-pay for doctor visit, etc. You got my point, right?

For some of you this will be extremely challenging especially if you have been spending your money freely but trust me it is worth the pain. The first few months will be a struggle but guess what, you will actually have money that are growing in your saving & investment account AND you are able to help other people regularly. It is truly an amazing feeling!

I am almost done! Hang in there! I only have one more suggestion.

5. Review your financial quarterly

Review your financial quarterly

Have you heard the saying “Change is the only thing that is constant”? Your income and particularly your expenses will change over time. Therefore, you need to set aside a time to review your financial statement. I recommend that you do it every 3 months.

I personally like reviewing my financial quarterly because I can see whether I am on track to hit my financial goals, such as my retirement age and child’s college fund. This activity will force you to review your savings and investment performance and decide if they are still the right choice or not. You should see a gradual increase if you invest your money regularly.

You will obviously go through your list of expenses as well and see if any of them has changed. This is also a good way to prepare if you are planning to do a major purchase or investment in the near future. It will guide you to look for any necessary changes and the timing of them.

Final Thought

Final Thought

In case you wonder how I come up with these principles, I am not the inventor of them. I learned these core principles when I was younger from reading a book titled Rich Dad Poor Dad by Robert Kiyosaki and the Millionaire Next Door by Thomas Stanley.

I have since added and applied the ideas with my own ways that work for me and my family and I encouraged you to do the same thing. If you find a better way on how to save money on a tight budget that works for you, please share it with me. We surely can learn from each other, right?

I know some people who do not like this concept. They normally say something like this to me, “I only live once so I am going to do and have anything I want before I can’t do it anymore. I’ll worry about my future later”.

If you were happen to be that person who has that attitude or know somebody like that, I have nothing against you or anyone else and I wish you the very best!

For those of you who are willing to try some of these ideas, I applaud your decision and I invite you to share your stories below in the comment box.

Thank you for reading.

To Your Success,



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