Spotify auto-detect size of free memory in Android.
If you need more streaming and less storage, just make sure you have little memory card (usually best place is built-in card). So do not install app to external sd card if this card is bigger in size than built in. However! If you have unused microsdcard slot, just purchase 2GB card and install Spotify to there. I can provide guide if you need.
Also in built in memory, just use more space and Spotify will use less cache :) So just add Full HD video, music, documents etc. to buil-in memory. When there is less than 1GB memory, Spotify will use only 20MB-300MB of space :)