12 ways to save money on a tight budget

Syda Productions/Shutterstock; Illustration by Bankrate

Being on a tight budget doesn’t mean there aren’t ways to set aside money to build a savings account. Here are 12 tips to help you build a healthy nest egg.

1. Make small changes to your budget across all categories

Being on a tight budget means every spending decision adds up, but you can start saving money by making small changes. For example, the money saved by making lunch instead of buying carryout or eating out can easily add up. The same is true with brewing your own coffee rather than stopping for a cup at Starbucks. Some other changes include:

  • Turning lights off when you’re not using them.
  • Cutting the cord on cable and opting for cheaper streaming services.
  • Running major appliances such as the dishwasher, washer and dryer during off-peak hours — usually early in the morning and later at night.

One way to budget is to use the 50/30/20 rule, which means allocating 50 percent of your income to essential expenses, with the remaining half — known as discretionary income — going to things you want (30 percent) and savings (20 percent).

2. Shop around for insurance rates

It’s smart to compare prices on auto and homeowners insurance every few years. An accident-free discount or other loyalty discounts may help you save by staying with your current company. But other times you’ll save more by switching or merging both auto and homeowners insurance with the same company.

Also double-check to make sure you’re receiving any discounts you’re entitled to, such as discounts for insuring multiple cars or being a safe driver.

Television or internet providers are other types of services you should compare prices on every few years, too.

3. Get a bank bonus

Some banks offer a bonus for opening a new account and meeting a few basic requirements like setting up direct deposit or maintaining a minimum balance. Some of the best bank bonus offers let you earn about $250 or more within a span of just a few months.

Read the fine print before signing up for a bonus so you’ll know how to earn the bonus and how long you need to keep your account open. Also watch out for minimum balance requirements that might make it difficult to open or maintain your account, as well as account fees that could eat away at your bonus amount.

4. Automate your savings

It’s easy to forget to save. That’s why automating the process is the best way to save money. Have your employer deposit part of your paycheck into a high-yield savings account to separate it from money used to pay bills. Compare rates to ensure your savings is earning a competitive yield.

5. Use a budgeting app

A money saving app could help you manage your money. For example, Digit automatically examines your accounts and moves money for you to help boost your savings. Also consider Chime, a banking app that makes it easy to save your spare change. Check out Bankrate’s list of some of the best budgeting apps.

You can also sign up for Bankrate’s myMoney tool to categorize your spending transactions, identify ways to cut back and improve your financial health.

6. Take advantage of pretax savings options

Set up automatic contributions to your employee-sponsored retirement plan, such as a 401(k), which uses pretax dollars to fund your retirement and can lower your taxable income. What’s more, some employers offer to match employee 401(k) contributions, providing essentially free money to help build your retirement savings. Employer-match programs typically require workers to contribute a minimum amount to qualify.

7. Take stock of food spending

Food can be one of the most expensive categories of budgeting, but it’s easy to control spending by making your own meals and cutting down on dining out. Learn how you can save money on your groceries.

8. Take advantage of student loan forbearance

Legislation passed in March 2020 put federal student loan payments on hold, but they are set to resume after Jan. 31, 2022. In the meantime, if you have a student loan, put the amount of your payment toward paying down high-interest debt or bolstering your savings, rather than spending it.

9. Watch out for new shopping habits

Consumers are traveling and visiting stores more than they were at the height of the coronavirus pandemic. Be sure to maintain the good saving habits you started during the lockdown and avoid revenge spending.

Online shopping, which gained in popularity during the pandemic, can make comparing prices easy. Seeing your total bill in your cart before checking out can also help you know exactly how much you’re spending.

10. Refinance your mortgage

Refinancing is an opportunity for some people on a tight budget to save money. Mortgage rates remain near historic lows, with the average 30-year fixed-rate mortgage rate around 3.24 percent, according to Bankrate data. Refinancing a mortgage could save thousands of dollars over the life of the loan.

For example, a homeowner with 25 years left on a 30-year, $275,000 mortgage has:

  • Current balance: $250,230.95
  • Original interest rate: 4.5 percent
  • Current monthly payment: $1,393.38 in principal and interest each month.

Over the course of the loan, the homeowner will pay a total of $226,618.46 in interest.

Now, let’s say that this homeowner could refinance to a 25-year mortgage with a 3.25 percent rate.

  • Refinancing would lower the principal and interest payment to $1,219.42 a month, saving $173.96 each month.
  • The total interest paid, assuming the mortgage is kept for another 25 years and including interest paid on the original loan for five years, equals $174,881 — a savings of $51,738.

Closing costs, which average about 3 percent of refinanced amount, are an important consideration when refinancing a mortgage and weren’t included in these calculations. These calculations are for illustrative purposes only and meant to provide general guidelines for refinancing your mortgage.

Even without considering the savings of paying less interest over time, saving money on monthly mortgage payments could help someone on a tight budget without affecting the home’s payoff timeline.

11. Find a way to save on rent

Renters may want to consider moving to a smaller place or a lower-cost area to save money. If you changed jobs during the pandemic or don’t have to commute everyday, moving to a cheaper place could shave big bucks off your housing costs, which makes up a large chunk of most budgets. You could also try negotiating your rent or the term of your lease to potentially save money on rent.

12. Check your paycheck withholdings

Getting a tax refund each year may feel like found money, but the truth is you’re overpaying the amount you owe in state or federal taxes. That money could be put to better use during the year, by paying down high-interest debt, building an emergency fund or adding to a rainy day fund.

Check with your accountant or use the IRS withholding calculator to see whether changing your tax withholding makes sense for you.

What experts say about saving money on a tight budget

Here’s what financial experts say about stretching your money.

Greg McBride, CFA, Bankrate chief financial analyst: “Trying to save when there is little or nothing consistently left over is challenging, so flip that around and do the saving first. Set up a direct deposit from your paycheck into a dedicated savings account and contribute to your employer-sponsored retirement plan via payroll deduction. While saying ‘you won’t miss what you don’t see’ sounds cliché, it’s true. Anybody I’ve ever counseled to do this that followed through came back and sang the praises of how well it works.”

Malik S. Lee, certified financial planner, managing principal and founder of Felton & Peel Wealth Management: “I think there are two things you must do to save while on a tight budget. One, you need to stay on budget and eliminate impulse purchases. Two, you need to utilize pretax employee benefits. Saving to vehicles like 401(k)s and HSAs pretax via your paycheck allow you to hit your savings goals while keeping more in your pocket versus saving after-tax.”

Malcolm Ethridge, certified financial planner, executive vice president and fiduciary financial advisor with CIC Wealth Management: “People who rent an apartment or house, they may not know it’s possible to negotiate their next lease when the landlord makes an offer to renew. This is especially true for those who rent from an individual or a smaller property manager. With so many apartment vacancies right now due to the pandemic, landlords are more flexible than they’ve ever been when it comes to keeping current tenants happy. It’s also a good idea to try and lock in a longer lease now if they plan to be there for a while. And the landlord will likely be even more flexible on rate if they know they have you locked in for 24 or 36 months instead of 12.”