How To Save Money If You’re Broke

Personal Finance

Updated on: Aug 11, 2022

Ramit Sethi

Host of Netflix's "How to Get Rich", NYT Bestselling Author & host of the hit I Will Teach You To Be Rich Podcast. For over 20 years, Ramit has been sharing proven strategies to help people like you take control of their money and live a Rich Life.

If you’re broke, track every dollar to see where your money’s really going, cut hidden costs like unused subscriptions, and start saving tiny amounts to build the habit. After that, focus on increasing your income—negotiate a raise, find a better job, or freelance on the side—and automate your savings so every small win sticks. The rest of this post will dive into the specifics.

Understanding Your Financial Reality

It’s frustrating to hear generic advice like “cut expenses” or “just save 10% of your income” when you’ve already trimmed your budget to the bare minimum.

There’s an important distinction between perception and reality when it comes to being broke, though. Some people who claim to live paycheck to paycheck actually have room to adjust their spending but aren’t willing to cut things like daily takeout or unnecessary subscriptions. However, for those who have truly cut everything possible, the idea of a spending plan might seem unrealistic.

The key is recognizing that while there’s a limit to how much you can cut, there’s no cap on how much you can earn. Instead of focusing only on reducing expenses, shifting your attention toward increasing income can provide better long-term financial stability.

Step 1: Analyze Your Current Financial Situation

The first step to getting ahead financially is understanding exactly where your money is going.

Track every dollar you spend

Tracking every dollar you spend is crucial. For at least one month, document exactly where your money goes—every purchase, bill, and transaction. Many people are surprised to learn where their money actually ends up.

Free tools like Mint and Personal Capital or a simple Google Sheets template can help. If you prefer physical methods, try the envelope system, assigning cash to specific spending categories.

Identify non-negotiable expenses

Separate your “needs” from your “wants” in your current financial situation. Actual essentials typically include housing, basic utilities, food, transportation, and medical costs. Be brutally honest about what is truly a necessity.

Cable TV, dining out, and most subscriptions don’t make the cut. Anything that isn’t absolutely essential should be considered for reduction or elimination.

Find hidden money leaks

Small recurring expenses—like unused subscriptions, bank fees, or impulse purchases—add up fast. A $5 weekly purchase might seem harmless, but over a year, that’s $260 that could be redirected to savings.

Pay special attention to fees and high-interest payments that provide zero benefit while draining your financial resources.

Step 2: Create a Conscious Spending Plan

Once you understand your current finances, it’s time to create a plan that works for your situation—not a one-size-fits-all budget.

Focus on the four major spending categories

A Conscious Spending Plan (CSP) focuses on four categories: fixed costs, investments, savings, and guilt-free spending. Even with tight finances, the CSP still works—you just modify the standard percentages. Instead of the typical 50–60% for fixed costs, you might be at 70–80% temporarily.

The key is adjusting these percentages as your income grows, reducing fixed costs and increasing savings as soon as possible.

Set realistic savings goals for tight budgets

Start small with savings. Even setting aside $5 or $10 per paycheck builds the habit. Saving $10 biweekly adds up to $260 in a year. The key is consistency, not just the dollar amount.

Use the “pay yourself first” method by treating savings as a bill that must be paid. Setting specific mini-goals, like reaching $100, then $500, helps maintain motivation. Even a $500 emergency fund can cover minor unexpected expenses like car repairs or medical co-pays, potentially preventing major financial setbacks.

Step 3: Cut Expenses Without Sacrificing Quality of Life

Cutting costs doesn’t have to mean deprivation. You can still enjoy life while spending smarter.

Negotiate fixed expenses (rent, insurance, bills)

Negotiating fixed expenses can lead to substantial savings with little effort. Many people don’t realize they can negotiate rent renewals, insurance premiums, phone bills, and even credit card interest rates.

A simple phone call to your provider asking about discounts or competitor rates can save you hundreds per year. Using polite but firm scripts increases your chance of success; the script can be as simple as, “I’ve been a loyal customer—what discounts are available?” or “I found a lower rate elsewhere; what can you offer to keep my business?” Be polite but persistent, and don’t be afraid to ask for a supervisor if the first representative can’t help. Consider bundling services where it makes sense, but always compare the bundled price to the cost of individual services to ensure you’re actually saving.

Step 4: Negotiate a Raise at Your Current Job

Sometimes the best way to save more is simply to earn more. Here’s how to position yourself for success in your current role:

Become a top performer

Becoming a top performer is key to negotiating a raise. Meet with your boss to clarify expectations and ask directly, “What would it take for me to be considered a top performer?” Document their criteria and create a plan to consistently exceed them.

For example, if improving customer response time is a priority, create a system to track and reduce it by a specific percentage while providing regular updates about your progress to maintain visibility.

Build your “briefcase” of achievements at work

Your “briefcase” of achievements is your proof of value when negotiating a raise. Over three to six months, track your key contributions, such as improving processes, increasing efficiency, or handling extra responsibilities. Save positive feedback you receive from colleagues, clients, or managers as supporting evidence. Then, compile a one-page summary highlighting your biggest wins and their impact on company goals. Walking into a negotiation with clear, measurable results makes it much easier to justify a raise.

Practice the actual negotiation conversation

Practicing your salary negotiation is just as important as gathering the right data. Role-play the conversation with a friend who has business experience, preparing for common objections like “You didn’t hit those goals” or “We can’t afford raises right now.”

Approach the discussion as a partnership, using phrases like “How can we make this work?” instead of making demands. A well-rehearsed, confident delivery can make all the difference. If you’d like a step by step guide how, you can download by Ultimate Guide to Getting a Raise below:

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Step 5: Find a Higher-Paying Job

If your current job isn’t meeting your financial needs, it might be time to move on.

Leverage your current experience

If your current job has no room for growth, a higher-paying position elsewhere may be your best option. Update your resume to focus on quantifiable achievements rather than just listing responsibilities. Use numbers and results wherever possible.

Remember that networking is crucial. Leverage LinkedIn to see who works where, and then reach out to connections at companies that interest you. Consider gaining certifications or skills that would qualify you for better-paying roles—online platforms like Coursera, Udemy, and LinkedIn Learning offer affordable training.

Learn about salary negotiation tactics for new positions

Before heading into any interviews, research competitive salaries for your industry using sites like Salary.com, PayScale, and Glassdoor. Knowing the going rate gives you the confidence to negotiate effectively.

If asked about your current salary, try to avoid disclosing it. Instead, steer the conversation in a slightly different direction by saying, “I’d love to learn more about the role before discussing compensation.” When you receive an offer, show enthusiasm for the position before negotiating. Then, based on your research and the value you bring, propose a higher range.

Keep in mind that the first offer is rarely the highest they’re willing to pay—and negotiating your starting salary can have a major impact on your long-term earnings.

Step 6: Start Freelancing or Side Hustling

The easiest way to save money is to earn more income. If you can’t increase your salary or find a higher-paying job, the next best option is to start a side hustle.

Find skills you already have that others will pay for

You likely possess skills that others would pay for—you just might not realize their value yet. Think about what comes naturally to you or what friends and coworkers often ask for your help with. Even simple side gigs like driving for Uber, babysitting on Care.com, or dog walking through Rover can generate quick cash with minimal barriers to entry.

If you prefer online work, platforms like Upwork offer opportunities for virtual assistants, writers, and designers. Beyond technical skills, businesses and busy professionals often need help with organization, communication, or administrative tasks. Many freelancers get started simply by reaching out directly and offering solutions to common problems.

Step 7: Automate Your New Savings

Once you’ve started earning extra income and cutting unnecessary expenses, the next step is to make saving effortless. Take decision-making out of the equation and let automation do the work for you.

Set up automatic transfers for even the smallest amounts

You don’t need to save huge chunks of your paycheck to make progress. Consistency is more important than the amount. Setting up an automatic transfer of just $10 or $20 per paycheck ensures you’re always putting something aside without having to think about it. When savings happen automatically, there’s no temptation to skip it “just this once,” which adds up over time.

Create barriers to accessing your savings

To prevent yourself from dipping into your savings on impulse, make it just inconvenient enough to withdraw. One simple trick is using a different bank for your emergency fund than your main checking account, adding an extra step before you’re able to access the money.

If you’re looking for additional safeguards and a small interest boost, consider putting some savings into certificates of deposit (CDs), which come with withdrawal restrictions that discourage unnecessary spending.

Build momentum with wins

Celebrating small milestones keeps you motivated. Watching your balance grow from $0 to $100 to $500 reinforces the habit and builds confidence. The more you see your savings grow, the more likely you are to keep going. Even modest progress is worth acknowledging—because every step forward is a step toward financial security.

Overcoming the Psychology of Being Broke

If you constantly feel stuck, overwhelmed, or like you’ll never get ahead, your thoughts might be holding you back as much as your bank balance.

Break the scarcity mindset

If your first thought when faced with an expense is, I can’t afford this, you’re reinforcing financial limitations. Instead, try asking, How can I afford this? This small shift reframes challenges as problems to solve rather than dead ends.

A temporary financial hardship doesn’t define your worth or your future. Many people have been in the same place and turned things around; your situation can change, too.

The scarcity mindset detriment: a real-life example

Mindset impacts actions, and actions shape results. Take Christina and Noah as proof:

[00:03:19] Ramit: You bring up something. He says, let’s talk about it. You do later, and then you don’t make a decision.

[00:03:27] Christina: Yes. Essentially, like I’m always waiting for him to finally have that conversation. And once we finally have the conversation, it still results in no action.

[00:03:36] Noah: There’s obviously a little bit here, a little yellow flag. Is it too expensive? Can we afford this? And that’s like, all right, well, have we looked at our other options? And it’s more of the analysis paralysis where, hey, let’s have a conversation. Let’s look at multiple options. Let’s not buy the first car on the lot because it’s shiny. That is where the difference is, like, you will come from this, I think we should spend our money. Whereas I’m just like, let me just amass as much money as possible and just avoid it and just forget about it. It’s for tomorrow.

Despite both earning high incomes, Christina and Noah constantly worry over money and their future, which restricts their decision-making.

Focus on abundance and opportunity

Your income potential isn’t fixed. There’s always a way to earn more, whether through a side hustle, a raise, or a career shift. Instead of focusing solely on cutting expenses, shift your attention to growth. Surround yourself with stories of people who improved their finances from similar starting points. If they did it, so can you.

Celebrate small financial victories

Every step forward matters. Whether you’ve saved your first $100, paid off a small debt, or landed a freelance gig, acknowledge it. These wins prove that your efforts are working and that your situation isn’t permanent. Progress fuels confidence—so take a moment to recognize how far you’ve already come.

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