How to Save on a Small Salary
With recent pay cuts and layoffs, many women are working for lower hourly wages and putting off saving for the day a bigger paycheck comes their way. But just because you’re making $12 an hour doesn’t mean you can’t achieve financial security. In fact, it’s all the more reason to get smart about saving.
“Achieving financial security really isn’t that difficult. It’s simply about the way you approach it,” says Pam Krueger, host of the PBS show Money Track. “Once you take the first step to saving and investing, you will feel empowered and in control.”
Train yourself. A big part of being a good saver is making a habit of putting your money away. Start doing so early and as often as possible and you’ll have a nice nest egg down the road. “Set up automatic monthly transfers between your bank and brokerage firm,” says Kreuger. “You won’t even miss the money.”
Free up cash. To invest, you need to find cash to contribute to a savings account or the stock market—even if it is only a dollar a day. Start paying attention to where and how you spend your pocket change and the small bills sitting in your wallet. “As cornball as it sounds, there is this campaign called Feed the Pig,” says Krueger. “You use the change found in your purse or pockets at the end of the day to ‘feed the pig,’ and pretty soon, the pig will be full and that’s your $1 a day.”
Start a credit-union savings account. Money that you need to keep safe and accessible should go into a savings account at a credit union (and everyone, Krueger says, should have about $1,500 to $3,000 saved in an emergency reserve fund before they start investing). Credit-union savings accounts have lower fees, more negotiable terms, and more competitive interest rates than traditional bank savings accounts. “In general, they are also just friendlier and more approachable,” says Krueger. “And the low fees help keep more money in your pocket than in theirs.”
Invest in a low-cost index fund. “Index funds keep costs down so every penny goes directly towards increasing your portfolio,” she says. “It also gives you instant diversification and instant access to really safe stock-market investing because it spreads your money around.” To buy stocks with small bundles of cash, visit Sharebuilder.com or consider going directly to a low-cost brokerage firm, such as Vanguard or Fidelity, that issues the index fund you are interested in.
Do it yourself. “If you are interested in investing in a particular company, like any of the major companies listed on the S&P 500, consider cutting out the middleman and investing directly through that company,” says Krueger. This method is called DRIP, or Dividend Reinvestment Plan investing; what it means is you are cutting out commission fees and smartly reinvesting the dividends yourself to increase the value of your investment portfolio—and your financial stability down the road.