Let’s look at personal spending especially related to our currently increasing cost of living. Most people don’t like to and find procrastination is an effective blind. Being too strict or unfocused can make it difficult to cut back on spending effectively. Budgeting doesn’t have to be strict or limiting. We need to centre it on your values and goals. Hence the reason it is an important component of your Financial Life Plan. Looking at past expenses and knowing where your money is going can help you be savvier at budgeting.
Several major companies have said that they would likely raise prices on products now that Trump’s tariffs are being implemented, which means those costs could be passed on to consumers. With that in mind, you may be looking for ways to cut spending and get savvier at budgeting in the near future.
Let’s share the biggest mistakes we see people make when trying to cut back on spending, and how to avoid them.
Tracking expenses
One mistake people can make when trying to curb spending is not having a good system to track expenses regularly.
Managing your finances is very similar to, in my mind, playing a game of chess. In order to make smart moves, you have to be able to see where your pieces are on the board. You want to be able to see the full picture. And when it comes to expenses, being able to see where your money is going can be empowering.
If you don’t track expenses, it can be limiting because you don’t know where your money is going.
There are many options available to avoid this mistake. Spreadsheets and budgeting apps are great tools for keeping track of expenses if you’re learning how to budget. Some of the best budgeting apps online have free plans. You can also use spreadsheets or the best personal finance software if you’d rather use a computer.
Going too hard too fast
One of the biggest mistakes she often sees is that people make dramatic cuts to expenses that can be unsustainable. Then you think you’re bad with money, and you revert back to where you were in the first place.
Instead of trying to make big changes to your spending in a short timeframe, it’s better to be methodical and understand your cash flow. Review your credit card and bank statements to examine your income and determine how much you spend monthly.
What we tend to see is that when people are actually taking those couple of hours to look at spending, they’re seeing that a lot of spending goals toward life conveniences that we’ve normalized along the way.
Once you know your spending habits, set limits to help cut back on expenses, rather than trying to eliminate them entirely. Introduce friction to areas where you want to reduce your spending, so it isn’t as easy to make purchases. For example, you can remove your credit card information from your computer or unsubscribe from places you get frequent notifications from.
Making room for your wants
Even when you’re trying to cut back on spending, you still need to account for your wants. We’re humans. We have impulses. We’re going to spend money. You have to allocate a fun money budget item in your budget. Making room for your wants in your budget can help you stick to it. It can also reinforce a more positive mindset about budgeting.
To factor in both wants and needs into budgeting, we recommend aligning your budgeting with your values. One strategy that may also help with making room for your wants is setting savings goals. For example, if you love traveling, you can set aside money every month to go toward a travel fund.
Depending on your bank account, you may be able to use certain features to help you maintain your goal. For example, there are savings accounts that have budgeting features so you can save for specific goals.
Overlooking recurring habits
One area people tend to overlook in their spending is regular and recurring expenses. If you do that, you’re not looking at the full picture. We always suggest people look at their regular spending instead of more one-off and irregular spending in their budget.
More regular and recurring spending habits often involve household-level spending. For example, you may be subscribed to different streaming services, but perhaps you don’t need them all. Sometimes it’s just like $20 more per month, but everything adds up.
Some budgeting apps have features to identify all the services you’re subscribed to, so you can become more aware of habits that may be overlooked.
Declutter your finances
Losing track of your monthly expenses? Online budgeting tool apps can help you take control by canceling unused subscriptions, tracking your spending, and organizing your financial life all in one app. Consider it decluttering your junk drawer, but for your bank account.
Only focusing on small expenses
Cutting back on your spending shouldn’t be limited to eating out or buying a cup of coffee.
Another mistake that people often make when thinking about cutting back is only focusing on those small expenses. Your daily coffee will add up, but really what’s going to push the needle is those larger expenses.
Review fixed expenses, like insurance policies or subscriptions, and seeing if you can renegotiate. You can also do research on competitors to see if there’s better value elsewhere.
The bottomline
Ultimately, to become savvier at budgeting, you need to understand your current financial situation, set your priorities, and follow through with strategies that curb your habits.
For each person, it will look a little bit different, but having a clear vision can help avoid mistakes and set you up for the financial future you want in Keeping Life Current.
