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59% of Americans Are Making This Glaring Mistake

By Maurie Backman – Updated Jan 31, 2019 at 9:46AM

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Give yourself a financial checkup.

Americans as a group have a tendency to engage in some financially sloppy behavior. A frightening 40% save so inadequately that they can't cover a $400 emergency, while the overwhelming majority of U.S. adults have some sort of debt in their name.

It's not shocking, then, to learn that 59% of Americans aren't currently tracking their spending in any way, according to a new report by the CFP Board. Worse yet, 40% have never even tried creating a budget.

If you have no idea where your money goes month after month, you're apt to have trouble saving and keeping your spending in check. Here's how to set up a budget that will help you take control of your finances.

Couple at laptop holding documents.


Step 1: List your fixed monthly expenses

There are those bills that stay the same every month and those that can change. The first part of creating a budget involves listing your fixed bills, including your:

  • Rent or mortgage payment
  • Car payment
  • Insurance payment(s)
  • Student loan payment
  • Credit card debt payment
  • Cable bill
  • Gym membership fee
  • Cell phone bill
  • Monthly transit pass

Figuring out what these items cost involves little guesswork. Just check your bank statements and copy those numbers onto a basic spreadsheet.

Step 2: List your variable monthly expenses

Determining your nonfixed expenses is a touch trickier, because it involves combing through your bank statements and credit card bills, tallying up your total spending for the past year in each category, and dividing that figure by 12 to arrive at an average. Still, you'll want that average to get an accurate sense of what you spend on expenses such as:

  • Food
  • Clothing
  • Personal care
  • Medical care
  • Heat and electricity
  • Fuel
  • Leisure
  • Gifts

Once you come up with those averages, you can add the above expenses to your spreadsheet.

Step 3: Account for one-time expenses

Some bills only pop up once a year. You'll need to factor these expenses into your budget for an accurate read on how much you spend, so once again, look through your bank and credit card statements and make a list of those random bills. They might include:

  • Roadside assistance service fees
  • Warehouse membership fees
  • Professional license renewal fees
  • Life insurance premiums

Once you figure out what one-time expenses you're dealing with, see what they cost and divide those figures by 12 so that you're setting money aside for them every month.

Step 4: Compare your total spending to your total earnings

Ideally, your spending should be such that you're able to save at least 15% to 20% of your earnings most months (keeping in mind that there will be times when unplanned expenses pop up that might make it impossible to save for a limited period). If you're spending above that threshold, you'll need to make some changes. Luckily, having a budget will make that easier, as you'll see where your money is going and where there's room to cut corners most painlessly. For example, while downsizing your living space might free up a nice chunk of cash for savings, to pull that off, you'll need to uproot your life and move. Spending less on restaurant meals and concerts, on the other hand, might impact your life less severely.

Step 5: Check your budget once a month for accuracy

As a final step, once you have that budget in place, review it monthly to make sure that it's still accurate and that you're actually sticking to it. If you're struggling with the latter, you'll need to reexamine your spending, see what's tripping you up, and perhaps cut back in other areas to account for it. For example, if you find that you're overspending because your heat and electric bills keep coming in higher than expected, and you're unable to do anything about that, you might instead need to spend less on takeout, or even groceries, to compensate.

Having a budget will make it easy for you to track your spending and avoid going overboard. And once you get into that habit, saving money and avoiding debt will be all the more feasible. So if you're among the 59% of Americans who don't track their spending, carve out an hour or so this weekend, set up that budget, and get your finances under control.

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