How to pay off debt and save money on a fixed income

We all know we need to pay and down our debt and save money, but that can be extremely difficult if you’re living on a fixed income.

The U.S. Census Bureau estimates that the median income for those living in the United States in 2017 (the most recent year for which numbers are available) was $61,372.

If your income is at or below that median amount, you may be finding it difficult to keep up with your bills or save any money at all, especially if you are on a fixed income. However, it is possible with some effort.

How to pay your bills and even save up money on a fixed income

When you are able to work, you always have the ability (at least in theory) to earn more money. But if you find yourself in a position where have a job is no longer possible for whatever reason, you may be on a fixed income — whether it is from Social Security, disability, a pension or some other source of money that results in you basically taking in the same amount of money each month.

If that's your situation, you may find that that set amount is barely covering — or not even meeting — your expenses each month, making it impossible to make any headway on your debt or save any money for emergency expenses.
Fortunately, there are some things you can do to try to improve your situation. Let's walk through them…

Develop a budget

The first step in getting a handle on your finances is to understand where that set amount of money you're getting each month income is going. You'll never be able to pay down debt or save if you're spending every dime you collect.
Though the idea of budgeting can seem intimidating at first, money expert Clark Howard thinks you'll be glad you did it:

"A lot of people look at being told to do a budget as if their life is being restricted. But the whole idea of budgeting is freeing because you're getting your life under control, creating more choices and reducing anxiety," Clark says. "Tracking what you're spending and then seeing where you can make changes in your life is powerful. This is about giving you power back into your life."

Being on a fixed income actually makes it easier to create what’s called a “zero-sum budget.”

A zero-sum budget means that you structure your budget in a way that every dollar has a set destination before you get your paycheck. If there’s any money left over after you account for expenses. It should generally be used for paying down debt. If you’re debt-free, put that money into a savings vehicle such as a retirement fund or an emergency fund.

By having a plan for every dollar before it hits your bank account, you can avoid wasting money through unplanned spending.

Start with the CLARK method: This budgeting guide will help you organize your spending and identify the categories that might need a little work.

Get out and stay out of debt

As mentioned above, any money not going to your living expenses should generally be used to pay down debt. reports that the average interest rate on credit cards is 17.72% as of May of 2019. That is far higher than the interest you could expect to earn over the long term in any legitimate investment.

Not only does carrying and accumulating debt mean that you have more in monthly payments to make each month, it means that you’re delaying financial freedom thanks to interest payments.

If you're carrying the average credit card balance per U.S. adult of $6,354 at that rate, that means that you're giving $1,125.93 each year to credit card companies thanks to interest charges. By avoiding debt or working to pay off the debt you have quickly, you can put this money into savings instead.

Start saving — and automate it

Once you’ve set up your budget (and are sticking to it) and paid down your debt, you get to the fun part: saving.

Automating savings is the best ways to save more money, no matter what your income is. By having a specified dollar amount come out of your regular check or checks and into a retirement or non-retirement savings account before you even see it, you’ll simply adjust to living on less and start saving money with little to no effort on your part.

Pay off debt and saving money — even on a fix income — is possible. With a little effort and perseverence, you can begin to save more money each and every week.

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