Budgeting for the future is really just one half of managing your money. The other half requires monitoring your spending in the present.
Watching, cataloguing and understanding how you actually budget and spend money—so that you do have extra to save for an emergency fund, retirement and other long-term goals—requires careful consideration. And every now and then, that requires a spending analysis.
An analysis helps you figure out where your money is going, where you can cut back, what you value and where your priorities have shifted.
Ready? These four tips can help you get started.
Categorize Your Expenses
Before you can understand where to trim your budget, you need a system that shows you precisely where your money is going. And that means you’ll need to figure out exactly where you are spending every dollar. For example, you might have a category labeled “food” in your budget. But do groceries and restaurant meals both fall under food? Or are they separate spending categories that need attention?
As you review your last few months of spending and categorize every single outgoing dollar, drill down to micro-classifications that align with your spending habits. Breaking down spending into clear categories can reveal spending patterns—and ways to save.
For example, you might notice that you spend less money on food overall when you spend more at the grocery store. That tells you cooking at home more and dining out less frequently can help prioritize food expenses. You might divide fine dining and fast food into two categories and realize you’d have money to splurge on an excellent restaurant if you cut out a week or two of mediocre fast-food lunches. Remember, it’s your money—so make sure you're in control.
Use a Budgeting Tool
If you’re not aware of your spending, you might be unable to recognize where you’re overspending or notice a big purchase that puts a dent in your budget.
Get some help doing the heavy lifting and use a budgeting tool. If you want to stick with a free option, many bank apps and credit card accounts have a spending analysis that automatically categorizes spending into expenses such as entertainment, transportation and food, helping you determine spending averages automatically.
There are plenty of budgeting apps out there: some will connect with your bank or credit card accounts to automatically subtract recurring payments. Apps like You Need a Budget (YNAB) use a zero-dollar approach to budgeting, which means your income equals your expenses. Others still will help you divvy up your income into different spending categories and help you put away money for a goal. These can help you quickly determine your average bills and identify places to cut back, such as monthly payments for a streaming service you're no longer using.
The best of the many, many budgeting tools is the one that works for you, and the only rule is to use it regularly. Otherwise, you risk feeling overwhelmed and may abandon your budget altogether. Above all, consistency is key. The more vigilant you are about watching where your money goes and checking your bank accounts regularly, the more prepared you’ll be to tweak your spending habits.
Also, your budgeting tool doesn't need to be fancy. You can use Excel or Google spreadsheets to calculate spending, or good old-fashioned pen and paper work just fine—as long as you know how much money is going in and out. It’s just that simple.
Collaborate With Family
If your finances are linked to your partner’s, work on a spending analysis together. For starters, you should know about one another’s debts, investments and bills. If you’re left in the dark about the movement of money—income or expenses—it can be challenging to get on the same page.
Make collaborating fun! Set “money dates” to check in with your partner about finances. Don’t be surprised if budgeting talks turn into larger conversations about spending priorities and savings goals. For example, do you want to buy a house together someday? Is travel a priority for you, while your partner would rather put that money into a savings account?
Couples-focused apps like Honeydue, Honeyfi and Zeta Money Manager can help you track expenses and get joint reminders or alerts. They may also help you see where you or your partner may need to assess your spending priorities so you can meet your shared goals. (While you’re at it, loop the kids into your conversations. You can use an app to transfer a set amount of money to spend at a specific store or in a certain category to learn how to develop smart money habits.)
Put the Spending Lessons Learned Into Action
Your spending analysis is not a drill. Your results should inform your actual spending decisions—and that may mean changing your lifestyle to readjust your budget. This can be the hardest step, and it may include rightsizing purchases in specific spending categories.
You might need to cut way back on retail spending to meet your long-term goal of buying a home. You might also find that your entertainment budget is too high because you prefer to stay home and watch TV or that you splurge every year on a summer vacation. Remember to not be too hard on yourself. If you love your daily lattes, then don’t give those up—just figure out a way to factor them into your budget.
The most important thing to remember? Stick with it. If you save more and spend less over time, you can watch your money grow—and achieve your big goals, financial and otherwise.
Alizah Salario is a freelance writer and editor based in Brooklyn, NY. Most recently, she covered personal finance for CNBC’s Grow magazine.