Retirement Decisions

Learn Where All Your Money Goes and Fix Budget Leaks

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Paula Pant is a former contributor for The Balance. She is a writer, speaker, and media commentator on the subject of personal finance.
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Paula Pant
Updated June 03, 2020

It's easy to overlook all of the tiny little "leaks" in your budget. You're busy with work, family, and other relationships. You're swiping your credit card as you buy groceries, pay for rent, and make other necessary purchases. With all this going on, it's difficult to accurately track your spending.

When you finally do check your bank balance, you may be surprised to see how low it is. You aren't spending lavishly. You aren't dining at the Ritz. You aren't flying to Paris every year. You don't drive a Mercedes-Benz. So, where is all of your money going?

Here are some starting points as you begin your search for budget leaks, along with some tips for how to get your budget under control (or start one, depending on where you are in your financial journey).

Discovering Your Budget Leaks

Start your search for budget leaks by asking yourself a few questions about your day-to-day spending.

How Much Do You Pay for a Haircut?

Did you shop around for the cheapest barber or hair salon, or did you opt for the best service you could find? Similarly, do you seek out deals for clothes and wear them as long as possible? Or, do you frequently swap out your wardrobe with new styles? Haircuts and clothes are necessary expenditures, but you may be paying more than you need on them.

Do You Buy Coffee Every Day?

Many people swing through a local coffee shop on their way to work in the morning, even though they could make coffee at home for a fraction of the cost. You can add bottled water to this category; you could fill up a water bottle with tap water, instead. Excessive snacking and dessert foods could also be clandestinely draining your budget.

How Often Do You Buy Lunch?

Forgoing a packed lunch in favor of eating out on your lunch break can quickly drain your funds. Even if you aren't going to a fancy restaurant, those fast-food burgers and food truck burritos add up. Putting in the effort to pack a lunch in the morning can save you a lot of money over a month.

Do You Drive Everywhere?

If you live in a city, you may be able to walk to your destination—but you choose to drive anyway. Walking saves money on gas, as will shopping around for car insurance to compare quotes. Buying a fuel-efficient car will save you money when you do have to drive. You may even be able to ditch the car altogether and opt for public transit, instead.

These represent some of the most common ways in which people spend money. Use them as a springboard to critically assess your spending. Are all of your purchases necessary? If so, are you opting for the cheapest option?

Budgets That Help Control Spending

As you ask yourself what spending is necessary and what isn't, keep in mind that it isn't "wrong" to treat yourself. You shouldn't feel bad if you enjoy nice clothes or fancy meals. The point is to control those expenses, so you don't go overboard and drain your funds.

Unnecessary spending is also called "discretionary spending." In other words, these purchases are made at your discretion, rather than as a necessary part of life.

This is where budgeting comes into play. The core of budgeting is prioritizing—cut the expenses that are less important to you, and you'll have room in your budget for the spending that matters most to you.

Here are a few of the most popular types of budgets, and who they work best for:

The Bottom Line

You may not be flying to Paris or dining at the Ritz, but you're still doing plenty of discretionary spending. That's fine. There's nothing wrong with a little discretionary spending. However, to afford it, you need a plan in place. Budgeting can help establish the framework of your plan, and it helps you track your progress as you try to stick to it.