The Most Common Budget Categories People Underestimate — How To Fix Yours Fast
Budgets can be boring — of course, that’s the traditional wisdom, and money experts and finance gurus from every form of media are constantly trying to spice up the often-staid practice with their own personalities (and personal advice).
But which categories truly are underestimated? Meaning: If you don’t have enough of your cash allotted to these buckets, you could be in serious trouble.
Let’s take a deeper dive and find out.
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Make Emergency Funds Nonnegotiable
When it’s time to sink or swim, you want to have serious (and liquid) assets at the ready. Underestimating this category is fiscally irresponsible and could end up being financially fatal.
Even the Consumer Financial Protection Bureau is ambiguous as to how many months of living expenses you should have squirreled away, while finance expert and podcast host Suze Orman has gone so far as to recommend a 12-month contingency fund as being adequate.
No matter your means, you should never overlook the security of a substantial rainy-day fund. If you’re looking to build up some cash reserves on the quick, consider setting up automatic and recurring transfers the day after your income is deposited. And if you’ve got a lot of unused stuff around the house, it’s the perfect time to set up a massive Facebook Marketplace or eBay sale to declutter your home while all proceeds go to emergency savings.
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Examine Essentials vs. Incidentals
When money expert Clark Howard and his associates talk about “walking-around money,” the surprise of how quickly all of these incidentals can add up is the first thing that comes to mind.
A Starbucks frap here and there or the odd Five Guys burger — despite current menu inflation — might not break the bank, but if you get into the habit of overspending on small indulgences, your bank account could become a casualty.
Howard encouraged savers to take a step back and examine everyday costs they take for granted. How would life change if this cost were removed? Even thinking about the essentials you would never surrender can get your brain in the right mindset to consider what you can do without. With the excesses removed, you might end up with more money in your wallet than first expected.
Fight Back Against Rising Grocery Bills
With the shocking price increase of groceries in the U.S. (and really, anywhere) — currently up 24% over the past six years, outpacing even the broader and equally scary inflationary picture — it doesn’t take long for the bill to outpace your initial expectations.
Budget disciplinarian and podcast personality Dave Ramsey and his team highlighted this difficulty and had a few quick tips on how to trim your food and beverage costs without too much hassle. First, check your pantry: How many jars of pasta sauce, neglected boxes of dry goods and bottles of ketchup and mustard are going unnoticed in your existing stores?
And, whenever your tastebuds allow, it could be a wise move to switch to private label or generic products versus the name brands we all know and love. Doing so could net you an equally cheesy pot of macaroni and cheese without overpaying for what is essentially the same product. Don’t forget to add some pepper (or maybe a few sliced hot dogs if you’re feeling fancy, yet thrifty).
Remix Wining and Dining
Sort of related to the previous category, recent data indicates that nearly all Americans (at least 89%, per Toast's relatively recent survey data) are dining out at least once a month — and boozy beverages are often a part of the experience, though that number is shrinking as attitudes toward alcohol shift. Again, maybe it’s time to get creative with the ingredients you already have at home (and to dust off the wine rack)! Or go out for a meal but resolve to drink water, and see how quickly your bill plummets.
Reevaluate Driving
In late 2024, money YouTuber Ramit Sethi spoke about cars as a “wealth killer,” with transportation costs being second only to housing costs in U.S. household budgets. As a depreciating asset, it’s worth thinking about just how much car you can afford and stay in your lane when it comes to driving something less luxe. Or, ditch the second car, figure out a carpool fix for your daily commute or even trade down to public transit. It's easy to think of cars as necessary for our income, but worth examining whether they cost more than they earn when alternatives exist for some people.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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