Roughly three-quarters of Americans say they have a household spending budget, according to a survey by OnePoll on behalf of deal-sharing platform Slickdeals. On the surface, that's a good thing because it implies most people are keeping track of their spending.
But of those who have a budget, a whopping 79% say they have trouble sticking to it, the survey revealed.
Keeping a budget doesn't do any good if you don't adhere to it. When you're not keeping a close eye on where all your money is going, it's easy to spend a little extra here and there every day and not realize how much it adds up to.
In fact, the average American spends around $7,429 more than budgeted each year, the Slickdeals survey found. That's a lot of dough, but it breaks down to about $20 per day. In other words, all it takes is spending an extra $20 at the grocery store or splurging on popcorn and candy at the movies to ultimately end up overspending by thousands per year.
Fortunately, it may be easier than you think to maintain a budget and trim your spending. And by doing so, you can potentially increase your savings by hundreds of thousands of dollars.
The easy way to establish a budget
Establishing and maintaining a budget can seem arduous, and tracking every dollar you spend is likely not your favorite task in your free time. But these days, technology makes it easier than ever to keep track of your money.
One of the easiest ways to monitor your spending is to download an app that can do it for you. There are several out there that can safely sync to your financial accounts and automatically keep track of where your money is going. Some of them will even separate the purchases into different categories, making it easier to see where you're spending the bulk of your cash.
Once you have an idea of exactly how much you're spending each month and what you're spending it on, set spending caps for each category. Some, like your mortgage or rent, may be relatively fixed. Other categories, like utilities and groceries, may offer slightly more wiggle room to save, but you still need to spend at least some money each month on these things. The biggest opportunity to make cuts will be in your nonessentials.
Try to cut back at least a little in each nonessential category of your budget. Keep in mind that it doesn't always take drastic moves to see a big difference over time; sometimes just trimming each category by $10 per week can result in saving thousands of dollars per year.
With a freshly updated budget and new spending limits in place, the tricky part is sticking to it. Sometimes it helps to break it down by the week to help pace yourself throughout the month. For instance, instead of telling yourself you have $100 to spend on dining out this month, think of it as $25 per week. That can prevent you from blowing your budget early in the month and risking overspending later.
Invest your savings wisely
Once you've trimmed the fat from your budget and have some extra cash at the end of the month, there are a few things you can do with that money. You may choose to pay down debt (particularly if you're saddled with loads of high-interest credit card debt), you might put some of it into a rainy day fund, or you might set it aside for a down payment on a house or other financial goal.
All of these are good options, but one other smart way to use this extra money is to save it for retirement. If that's still decades away, it might be tough to see the importance of preparing for it right now. But the earlier you begin saving, the faster your money will grow.
For example, say you're able to trim your expenses by $7,000 per year by making budget cuts. You put some of that money toward your other goals, and you end up contributing $5,000 per year toward your retirement fund. You'll end up with total savings of around $473,000 after 30 years, assuming you're earning a 7% annual rate of return on your investments. If you keep saving at that rate for an additional five years, your total savings will jump to around $692,000.
Sticking to a budget and saving for retirement can be intimidating goals, but they work hand in hand -- and neither is as difficult as you may think. By mapping out your costs each month and ensuring you're not overspending, you can potentially save thousands per year. And when you invest those savings wisely, you can grow a nest egg worth hundreds of thousands of dollars.