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Could This Be the Secret to Successful Budgeting?

The Motley Fool logo The Motley Fool 6/21/2021 Christy Bieber
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Living on a budget is undeniably a smart financial move. When you make a plan for how to spend your dollars, you should be able to get more value from them. You can also avoid overspending and steer clear of credit card debt by making sure you're living within your means.

Now, this only works if you both make a budget and stick to it. And that's the hard part. Many people create a spending plan but then end up busting their budgets repeatedly. This can undermine your efforts and potentially lead you to giving up on the idea of budgeting entirely.

The good news is, there may be a simple budgeting trick that you can use to avoid that outcome. Here's what it is.

Try this technique to maximize the chances you'll stick to your budget

If you want the best chance of actually being able to follow your budget, take an important preliminary step before you decide how to allocate your funds.

That step is tracking your spending. For one month, write down everything you spend money on, including big and small purchases. You can use a budgeting app to keep track, or you can do it manually as long as you make sure to note all the things you spend money on.

Once you've tracked where your money is going for a month, you'll have a much better idea of what your baseline spending is. This information can be used to guide your budgeting process.

See, if you don't take this step first, then it's much more likely that you'll end up trying to make unrealistic cuts that are impossible to stick to. For example, if your gas budget is currently $160 per month and you cut that spending down to $50 a month, you're probably setting yourself up for failure unless your driving habits have massively changed. And that's the case with any drastic financial cuts in most areas of your life, from groceries to clothing to children's activities.

If you track your spending first so you understand where your money is going, you can set realistic spending expectations for the necessities. Without taking that step, it may be tempting to budget too little for the essentials since this type of spending isn't always much fun.

Then, after you've made sure you've budgeted enough for the things you need, you can decide what luxuries you value most, which ones you believe you could cut back on based on your current spending patterns, and what a reasonable spending cut is.

Slashing your dining out budget from $500 to $50 a month might not be a sustainable reduction in spending, for example, but you won't know that unless you know where you're starting from. With a clear picture of your current spending, you could reduce dining out by a more reasonable amount while also making other cuts elsewhere.

By taking the time to track spending, you can set yourself up for success with your personal finances by ensuring that your budget includes realistic changes to your spending habits that you can sustain over the long haul.

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Video: Money is cheap, let's spend it - White House $6 trillion budget message (Reuters)

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