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Fifty percent of credit cardholders in America have debt, as of June 2024, according to a Bankrate survey. Furthermore, a MarketWatch Guides survey found that over 66% of Americans live paycheck to paycheck—and nearly half consider themselves broke.
It’s easy to overspend. The cost of living spiked sharply during the pandemic, and although inflation has since stabilized, many goods, including grocery staples, remain over 40% higher in 2024 than in 2020.3 Other factors leading to overspending include limited financial planning, low income, and unexpected emergencies.
A budget can help ensure that your income aligns with your spending. These secrets to budgeting better can help you take control of your financial future.
Key Takeaways
- The majority of Americans say that they spend beyond their means and 66% say that they live paycheck to paycheck.
- According to the U.S. Census, 78.6% of Americans were concerned about price increases in the future, and 37.4% of adults reported difficulty paying for usual household expenses between July and August 2024. U.S. Census Bureau. “Household Pulse Survey.” Download all data.
- Tracking spending with a budget can help identify wasteful spending, proactively tackle debt, and set realistic income goals for the future.
Natalia Lebedinskaia / Getty Images
5 Secrets To Budgeting Better
Basic budgeting includes listing your income and expenses, setting financial goals, making a plan, and regularly reviewing it to make adjustments as life happens. Here’s how to make a budget that truly works for you.
1. Start With Why
Many people feel guilt or shame about their financial situation, preventing them from making life-changing shifts.
Rather than focusing on the numbers, focus on your purpose—why you want a better financial future. For some, it is to reduce daily stress; for others, it is to help a family member or friend in need.
No matter your why, start there. Visualize how you’d reach those goals if only you could maximize your earnings and spending. Remember to write down your why and put it in places you’ll see throughout your day—in the bathroom mirror, in a notebook at work, in the vanity mirror in your car, on a sticky note in your wallet—so that when the urge to splurge creeps in, you have the motivation to stick to the plan.
2. Track Your Monthly Spending
The best budgets are ones you can stick to. That means they are realistic from the outset. Rather than creating an ideal fictional budget, commit to one based on actual spending. This helps ensure your situation doesn’t worsen by letting harmful habits run wild. Knowing that today’s spending is the worst it’ll ever get means you’re starting with a quick win.
Common advice says to track your monthly spending, but that can feel intimidating. Instead, track a typical week and do the math to extend those numbers for a month. This exercise lets you see what you’re dedicating your dollars to right now. Over time, you can realistically lower your spending strategically to close the gap between your current and ideal budgets.
Tip: For another motivational push, divide the total number by 7 to see how much money per day you need to finance your current lifestyle. This can be your income goal when asking for a raise, changing jobs, or starting a side hustle.
3. Automate Your Savings
One myth of implementing budgets is that you need to have lots of willpower to make them work. Thanks to banking automation, that’s just not true.
Make your budget a blueprint by setting up direct deposit and recurring payments from your bank account. You’ll reduce the temptation to splurge as well as ensure that you’re not hit with late fees or missed payments that further diminish your available cash.
Based on your budget, set your accounts to save some portion of your income automatically—no matter how small—for your why. Automating your money will mean that each dollar fulfills its role in your budget blueprint without any interference or temptation.
4. Reconsider Your Wants vs. Your Why
The investment research firm Morningstar says that learning to master delayed gratification is one of the key components of financial well-being that a budget brings. Get in the habit of regularly reevaluating your wants vs. your needs to ensure that your budget is helping to accomplish your goals.
Wants are things you desire but can live without, like entertainment, travel, luxury cars, and non-essential clothing. Needs include housing, healthcare, and transportation.
Impulse buying is often tied to emotional spending from underlying psychological causes that a budget alone won’t fix. Instead, try using your budget to normalize waiting for what you really want. Asking yourself two questions can stem the cycle of overspending:
- “Do I need this to live?” If the answer is yes, buy it. If the answer is no, wait 24 hours before reconsidering the purchase. With luck, you may have completely lost interest the next day.
- “How does buying this further my why?” If you can explain how prioritizing this purchase over others on your budget can further your why, then adjust the budget and take the plunge. If not, forego the purchase until you can work it into your budget.
5. Tackle Your Debt
Consumer debt like high-interest personal loans and credit cards present a major obstacle to achieving financial freedom. Other debt, like affordable mortgages and low-interest educational debt, can be worthwhile investments in your future. The secret is to stay educated about your debt and how you can reduce the amount you’re paying toward interest over the life of the loan. This is especially important for debt used to pay for depreciating assets like recreational items and vehicles.
There’s no one-size-fits-all approach to paying off debt, but use your budget to choose a method you can consistently maintain. Try the snowball method, the avalanche method, or a sinking fund. To make significant progress with debt payoff, you can consolidate debt to simplify the payoff and negotiate better terms.
Note
Your budget can also help you make the best use of any windfalls like bonuses, inheritances, or tax refunds.
What Do Americans Spend Most of Their Money On?
According to the U.S. Bureau of Labor Statistics (BLS), Americans’ most significant expense is housing, including rent, mortgage payments, property taxes, homeowners insurance, and home repairs.
Zillow data shows that the median rent in the U.S. in September 2024 is around $2,100 per month, and the average home price in the United States is over $361,000 (up 2.9% over the past year). Whether you rent or own, housing maintenance and utilities are significant additional outlays.
What Do Americans Splurge on the Most?
The BLS reports that Americans splurge most on food delivery, eating out, entertainment, and apparel.
What Percent of Americans Use a Budget?
Nearly 74% of Americans have a budget, but the effectiveness of that budget can vary significantly by generation and family composition.
NerdWallet. “Most Americans Have a Monthly Budget, but Many Still Overspend.”
What Is the 50-30-20 Rule?
This budgeting rule suggests that working adults allocate 50% of their income to needs, 30% to wants, and 20% to save for retirement and other goals.
What Are the 3 P’s of Budgeting?
The three P’s of budgeting are Paycheck, Prioritize, and Plan. Evaluate your paycheck and other income, including bonuses, alimony, child support, tax refunds, or rebates. Prioritize spending by considering your needs, wants, and why. Plan to get the most value for every dollar earned and spent by keeping a budget.
The Bottom Line
According to the Federal Reserve survey, only 63% of adults said they could cover a hypothetical $400 emergency expense with cash on hand.11 Although many factors contribute to overspending, setting a budget can help you establish new, healthy financial habits. Begin by assessing your current expenditures and wants vs. needs. Then, automate banking and bill payment to ensure that every dollar furthers your financial goals.
Don’t be discouraged by occasional setbacks. Unexpected expenses like medical emergencies or repairs will arise. Instead, get in the habit of reassessing your budget and finetuning it as needed.