Budgeting is one of the fundamental aspects of financial literacy. Budgets are built around the core spending habits of an individual, making the connection to everyday expenses more impactful when we consciously recognize money flowing out of our pockets. But what happens when we don’t actively think about the money we’re spending? What happens when we simply swipe a credit card at the store without paying attention to the numbers on the screen?
According to a survey from NerdWallet, 84% of Americans with a monthly budget admit they have exceeded it at times. Some key findings from the survey include:
- Most Americans overspend, often relying on credit cards
- The survey found that 83% of Americans admit to overspending, and a similar percentage of those with a budget say they exceed it. Of those who have gone over their budget, 44% typically use a credit card to cover additional purchases.
More often than not, the money to pay off this deficit isn’t accounted for in the following month’s budget. As a result, individuals carry balances on credit cards with interest rates as high as 29.99% APR. Over time, this leads to mounting credit card debt that becomes increasingly difficult to manage.
- Emergency savings is a financial priority for many
- Nearly half of Americans say they want to prioritize emergency savings. Other top financial priorities include investing and retirement planning. According to the survey, 92% of Americans have one or more financial priorities. The most common is emergency savings (48%), followed by investments (36%) and retirement planning (35%).
- Millennials (ages 27-42) and Generation X (ages 43-58) are the most likely to prioritize emergency savings, with 56% and 52%, respectively, identifying it as a key focus. Comparatively, 38% of Generation Z (ages 18-26) and 44% of Baby Boomers (ages 59-77) report the same priority.
- However, many Americans have little to no emergency savings. Data from the Consumer Financial Protection Bureau (2022) shows that 24% of Americans have no emergency savings, while an additional 39% have less than one month’s income saved. Without an effective and structured budget, emergency funds, retirement accounts, and investment accounts will never be fully funded. Failing to budget properly creates a financial emergency in itself.
While a budget is a tool to help build financial stability, it serves little purpose if we don’t understand how to budget effectively and recognize the psychology behind our spending habits. The key to constructing a strong budget is focusing on expenses. Fixed expenses, such as a mortgage or insurance, offer little flexibility beyond periodically shopping for better insurance rates or refinancing a mortgage when financially beneficial. However, variable expenses can be actively managed on a day-to-day basis.
Consider habitual spending patterns, such as buying coffee before work, grabbing a snack every time you fill up on gas, or purchasing energy drinks from the vending machine at work. These seemingly small expenses add up over time and should be evaluated: Is this a need or a want? Where does it fit within your budget? If you have an expensive medical procedure coming up, will buying an energy drink truly benefit you in the long run?
While small daily expenses matter, avoiding overspending in key budget categories is even more important. For example, while food is a necessity, that doesn’t mean every meal needs to be made with the highest-quality, most expensive ingredients. Instead, sticking to essential ingredients and meal prepping rather than dining out can save significant amounts of money. According to the same NerdWallet survey, groceries, dining out, and clothing are the top three overspending categories.
As humans, we develop patterns and habits. Once we recognize these behaviors, we can work with them to structure a budget in a sustainable way. Understanding behavioral finance helps identify and overcome psychological biases that lead to poor budgeting decisions. Applying structured budgeting methods and psychological strategies creates a financial plan aligned with both immediate needs and long-term goals.
Ultimately, financial maturity comes down to discipline and structure. We don’t need to go out for lunch multiple times a week, buy another pair of shoes, or upgrade our car just because we’re bored with the old one. Making wise financial choices helps prevent situations where there’s not enough money in a checking account to cover an emergency—forcing reliance on credit cards instead. Thoughtful budgeting is not just about limiting spending; it’s about creating financial freedom and peace of mind.
Advisory Services offered through Nepsis, Inc., An SEC Registered Investment Advisor.
Sources:
Most Americans Have a Monthly Budget, but Many Still Overspend – NerdWallet
What Happens When You Don’t Budget? The Hidden Dangers of a No-Budget Lifestyle | GOBankingRates