How to live well on a small income in the UK
According to the Office for National Statistics*, the average income of someone living in the UK was around £29,900 in the financial year ending 2020. Of course, many people earn much less than this and the soaring cost of living is also adding to the financial burden.
If you’re on a tight budget, you may be looking for ways to live cheaply in the UK. The good news is there are plenty of strategies to help you live well on a small income. Read on to find out more.
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How to live well on a small income – the three key areas
Not everyone has the luxury of a high income. If you’re on a modest salary or your earnings have recently dropped (perhaps as a result of going part-time), you’ll need to organise your finances carefully.
In this article, we outline the three key areas where you can make changes:
- Lowering your expenditure
- Increasing your income
- Good money management
While living on a small income isn’t always easy, these simple tips will help to make your money go further.
Reducing your expenditure
Expenditure falls into two main categories: fixed expenses and variable expenses.
Fixed expenses refer to things like gas and electricity costs, council tax and your TV licence. Despite the name, it’s still possible to reduce your fixed expenses – you just need to think creatively and put in a little effort.
Mortgage or rent costs are likely to be one of your biggest expenses. If your mortgage is due for renewal, search around to check whether you could switch to a better rate. This might be with the same company or a different provider. Either way, it could save you a substantial sum of money in the long run.
You can use various comparison websites to compare mortgage deals or you may want to speak to a specialist mortgage broker. You may also want to use a mortgage calculator to help you work out your monthly repayments, costs and interest rates.
2. Council tax
While your council tax band may be beyond your control, you might be eligible for a discount on your bill. You may be able to get a reduction if you’re on a low income or if you claim benefits (more on this below). There may also be reductions if you’re a full-time student or in a single-person household. The amount of the reduction varies depending on your circumstances. Visit the gov.uk website to find out more.
3. Gas and electricity
Soaring energy prices are placing considerable strain on many households, especially those on a small income. While the current situation means there is less flexibility when it comes to switching your gas and electricity supplier, there are still ways to save money.
If you’re living on a tight budget, reducing your energy usage is key. As a starting point, replace inefficient bulbs with LED versions, switch off appliances and minimise your use of energy-hungry appliances, such as tumble dryers. During the winter months, draught-proof your windows and doors and turn down your thermostat. Even lowering it by just one degree could have a big impact on your energy bills.
There are usually specific companies that supply water to a particular area, which means there isn’t much scope to switch providers. That said, there are other ways you can reduce your water bill.
Firstly, check whether you can receive a discount on your bill under the WaterSure scheme. To be eligible for the scheme, you need to use a large volume of water either for medical reasons or because your household has a certain number of school-age children.
You can also save money by reducing your water consumption, for example, by taking shorter showers, turning off the tap when brushing your teeth and installing a water butt.
5. Subscriptions and TV licence
Review your TV entertainment packages and determine whether there are any that you rarely use. Do you really need Prime, Netflix and Sky? If you’re on a small income, you may decide you can live without one or even all of them. If you really can’t bear to part with your streaming service, consider sharing your subscription with another household and splitting the monthly charge between you.
If you only watch on demand (and not live) programmes through streaming services such as Netflix or Now TV, you may no longer need to pay for a TV licence.
6. Phone and broadband
By remaining loyal to your existing phone and broadband supplier, you might be missing out on some good deals. It’s worthwhile shaking things up now and then to see where you could be saving money, or use a competitor quote to haggle with your current supplier. You may find they’re willing to drop the price to keep your custom.
Again, the key message is to shop around. Whether it’s car insurance, home insurance or pet insurance, never auto-renew without doing your research first. It may take some time but it will save you money in the long run. And when you’re living on a low income, every pound matters.
Variable expenses cover spending on things such as food, petrol and socialising. These types of costs can easily snowball if they’re not managed carefully. Luckily, there are some simple ways you can cut spending in these areas.
Food can be a big expense for some people, especially when there are lots of mouths to feed. Luckily, there are plenty of ways to save money on your weekly food shop.
As a starting point, plan your meals and make a shopping list before heading to the supermarket. This will minimise the chances of buying unnecessary items and reduce food waste.
Another great way to curb your supermarket spending is to buy less meat. Good quality meat can be expensive, so if you’re living on a budget try cooking a few vegetarian meals instead.
You can also make your money go further by shopping in budget supermarkets and purchasing own-label items instead of big brands. And don’t forget to take advantage of supermarket loyalty schemes such as Tesco Clubcard, Nectar and the Lidl Plus app.
When it comes to shopping, try to cut down on non-essential purchases. We all like to treat ourselves, but if you’re living on a small income then unnecessary purchases can put a serious strain on your finances. Instead of buying something straight away, sleep on it. You may find that after a few days you’ve forgotten all about it. In which case, you never really needed it.
Another tip for living cheaply in the UK is to buy second hand. Charity shops are full of interesting and unique items and, most importantly, they’re cheap. Consider browsing online marketplaces for pre-loved clothes, furniture and gifts.
10. Petrol and diesel
With fuel costs on the rise, filling up your car can take a hefty sum out of your monthly spending budget. While you have little control over the prices at the pumps, you can look for the cheapest petrol station in your area. There are various comparison websites that allow you to compare petrol and diesel prices across UK forecourts.
If you want to live cheaply, aim to reduce your fuel consumption. You can do this by driving more economically – accelerate gently, ensure your tyres are inflated correctly and remove excess luggage to save fuel. Of course, you will also use less petrol if you make fewer trips, combine journeys and walk or cycle whenever possible.
For many people, exercise is key to living well. But you don’t have to spend a fortune to stay in shape. If you’re on a small income, try running or exercising at home instead of paying for a monthly gym membership. There are lots of great workouts to try on YouTube. Alternatively, if you enjoy going to the gym but don’t visit regularly, you may want to buy a day pass rather than a monthly membership.
There are lots of easy ways to embrace frugal living in the UK without affecting your lifestyle.
Increasing your income
Hopefully the above ideas show that it is possible to live well on a small income. But if you really want to give your finances a boost, try to find ways to increase your income. Even if a pay rise doesn’t look likely, there are other strategies you can employ to make your life that little bit more comfortable.
12. Check your tax code and tax relief entitlements
It’s thought that millions of UK workers could be paying the wrong amount of tax. It’s a good idea to check your tax code regularly, especially if you’ve recently changed jobs. You never know, you may be due a tax refund.
On the subject of tax, make sure you’re claiming any tax breaks for which you’re eligible. If you often work from home, for example, you may be able to claim tax relief for additional household costs.
Do you wear a uniform to work? Check to see whether you’re entitled to a uniform tax refund. Meanwhile, marriage allowance lets you transfer a portion of your personal allowance to your spouse or civil partner if they earn less than £12,570 in 2021/22.
13. Take part in surveys
It’s by no means a quick win, but taking part in paid surveys can be a good way to earn some extra cash. There are various survey sites online that will pay you for expressing your views on a range of topics. The most prolific survey fans can earn hundreds of pounds over a year.
14. Sell unwanted items
Lots of people make some extra cash by selling second-hand goods on online marketplaces. Apps like Vinted are also great for selling second-hand clothes, while some companies will give you cash in return for your old garments.
16. Start a side hustle
If you’re on a small income, starting a side hustle could be the ideal way to earn some much-needed cash. Search online and you’ll find plenty of ideas to make some money outside of your main job. Popular examples include selling crafts or art prints, freelance writing, photography and pet sitting.
You could also consider renting out a room in your home. The Rent a Room scheme currently lets you earn up to £7,500 per year tax-free. You could even rent out your garage or driveway if it’s vacant during the day. Car parking rental marketplaces allow you to list your space for free and take a commission on any bookings.
This guide explains everything you need to know about tax relief, how it works, what you can claim tax relief on and how you claim it.Read more
When employees are asked to work from home, their expenses are likely to increase due to additional use of things like electricity, heating and the internet.Read more
In this guide, we explore how much you can have in savings without it affecting your benefits, along with what’s classed as savings and what isn’t.Read more
Managing your money
Your efforts to minimise spending and increase your earnings will be futile if you’re not managing your money effectively. Here are some suggestions to help you stay on top of your finances.
17. Track your spending
The first step is to track your spending. Online banking allows you to monitor your account activity quickly and easily. Once you know exactly what your income and outgoings are, you can identify any areas where you’re overspending. If you are living beyond your means then it’s time to curb your spending and/or increase your income (see above).
18. Set a budget
Once you have a good understanding of your outgoings, you can set a budget. By drawing up a budget you’ll know exactly what you can afford to spend during the month, which is essential if you’re on a small income. Be sure to review your budget regularly to check whether your spending is within your set limits. If you’re not sure where to start, our free budget planner will help.
19. Be sensible with borrowing
If you’re on a low income, you’ll need to be extra cautious when it comes to borrowing money. Stay clear of costly payday loans and try to keep credit card and overdraft spending to an absolute minimum. Debts can easily snowball and you could face high interest rates or charges if you don’t pay them off quickly.
While you may want to protect any savings you have, it might be worth using them to pay off your debts. For example, paying off your credit card debt could save you a significant amount of money in the long run. It’s also a good idea to create an emergency fund. It might not be easy, but starting a rainy day fund will help you to cover unexpected large bills and minimise your need to borrow.
20. Set some savings goals
Although saving money on a small income can be tricky, it’s not impossible, especially if you follow the tips covered in this article. To help you stay motivated, you might want to set some savings goals. This could be anything from buying a new car to saving a set amount in time for Christmas.
Even if you don’t have a specific objective, establishing some simple short-term financial goals will help you to stay focused. Your goal could be, ‘I want to lower my food bill by £20 a month’ or ‘I want to save 10% of my monthly salary’. Whatever it is, make sure it’s achievable. When you ring-fence your money for a specific purpose, you’ll be less likely to waste it. For more ideas and advice, read our article – Ways to save money on a tight budget.
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