Low income families and families forced to live on one income because of layoffs can get into financial trouble. Spending more than you earn by taking on debt is a common pitfall that often can to bankruptcy. Taking steps change spending habits and save money by living frugally can help low income families live with more financial freedom.
Avoid Credit Cards and other Debt
One of the worst things you can do if you have a low income is to take on debt and use credit cards. When you use credit or take on loans, you pay the lender to use the money. If you have low income, it may be difficult to pay the loan back. Lenders typically impose higher interest rates on those with lower credit scores like low income earners, meaning borrowing money will likely be more expensive for those with low income than those with higher income. Avoid any offer that guarantees you quick cash or cash advances.
Tax Tips
Low income families may be eligible for a variety of tax breaks such as Earned Income Credit, tax breaks for dependent children and a making work pay tax credit. It is important for low income families to make sure that they receive all possible tax breaks; seeking advice from a tax professional can help you determine what tax benefits you quality for. Many online tax filing services offer free filing for filers who do not meet certain income thresholds.
Cut Unnecessary Expenses
Cutting back on unnecessary monthly expenses or finding cheaper alternatives is a way to increase the amount of income you have left over each month to devote toward savings. Services such as cable TV and digital cable can cost over $50 a month; consider subscription to a cheaper service like Netflix or view video content over the Internet. Reduce needless energy consumption by turning off lights when they are not in use and setting the thermostat lower in the winter. Avoid running air conditioning in the summer.
Scale Back Big Ticket Items
It can be tempting use savings carefully stashed away after months of careful spending on a big ticket item that you may not have been able to afford in the past. Big ticket items like HDTVs and new cars may seem like a good idea, but they lose value quickly, making for poor long term investments. Used cars and electronics that are only a few years old can cost less than half of the original price. It's usually not worth paying a premium for state of the art features: what is state of the art today will likely be standard or obsolete within a few years.
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