Let's face it: Establishing a budget likely isn't the most exciting task on your to-do list. In fact, more than one-quarter of Americans say they'd rather get a cavity filled than prepare a budget, a survey from Capital One found.
However, budgeting is the foundation of healthy finances, so the more skilled you are at it, the better your money situation will be. Budgeting not only helps manage your money on a day-to-day basis; it also can make it easier to reach your long-term goals. There are three strategies budgeting all-stars have in common, and by taking advantage of them yourself, you can improve your financial situation, too.
1. They track their spending
Budgeting all-stars are masters at keeping track of their cash. To be successful at budgeting, you'll need to know where all your money is going. It's easy to overspend without realizing it, because a few dollars here and there may not seem like it would add up. But if you're not tracking your expenses, you could be spending much more than you think.
Fortunately, tracking your money doesn't have to be complicated, and there are several apps that can record your spending automatically. Some apps will even break your expenses down into different categories, making it easy for you to see where the bulk of your cash is going.
If you're not used to tracking your expenses, you could be in for a surprise when you see exactly how much you're spending every month. Approximately 60% of Americans say they're living paycheck to paycheck, a survey from Charles Schwab found, and yet that same survey also revealed that the average person spends close to $500 per month on unnecessary costs. In other words, if you don't track your spending, you could feel like you don't have a penny to spare when you're actually spending more than you think on nonessential expenses.
2. They set both long-term and short-term goals
Tracking your spending can help you save more money, but without a goal in mind, it's tough to tell what you're saving for. The best budgeters have multiple goals in mind, both for the long term and short term. Even more importantly, though, they also have a plan to achieve them.
Long-term goals consist of major financial ambitions, such as saving for retirement, paying off all your debt, or buying a home. Short-term goals, then, are much smaller -- like paying all your bills on time each month, building an emergency fund, or saving for your next vacation.
First, map out all your goals. Be thorough, and try to account for every single financial target you have, both big and small. Next, allocate at least a little cash toward each goal. Prioritizing is key here, because how much money your put toward every target will depend on the size of the goal and how much time you have to achieve it.
Keep in mind, however, that some long-term goals (like saving for retirement) require a lot of preparation. Although retirement may be decades in the future, if you put off saving for too long, you may not be giving yourself enough time to save as much as you need. So while it may be tempting to focus more on your short-term goals, be sure to allocate at least a little cash toward your long-term targets. too.
3. They are willing to make sacrifices
Unless you have loads of cash lying around, chances are you'll need to make some sacrifices as you're budgeting. And every budgeting all-star knows this, too! If you've set your goals and are tracking your spending, it will be easier to see where you should make cuts -- and where you should reallocate that money.
Comb through your budget regularly to see if your spending is creeping up in any particular category, and consider setting monthly spending limits. If you find that you're consistently spending hundreds of dollars per month on dining out, for example, set a spending limit for that category -- and stick to it. The extra cash you save can then go toward your financial goals.
If you can swing it, try to set spending limits and make at least minor cuts to as many categories in your budget as possible. Some areas may not have much wiggle room (such as your rent, mortgage, or debt repayments), and that's OK. Focus more on your nonessential costs each month, like entertainment, dining out, and online shopping. You don't have to eliminate any of these expenses completely, but try your best to stick to your spending limits each month to free up some cash.
Sticking to a budget may be challenging at first, but it will get easier with practice. Once you get into the habit of budgeting, you'll be able to make smarter money decisions, save more money, and improve your overall financial health.