Nearly 3 in 5 Americans are making this huge financial mistake

Pile of Money

NEW YORK — Americans on a whole just aren’t great savers, to the point where almost 70% of us don’t even have $1,000 in the bank. Furthermore, almost half of Americans claim that to cover a $400 emergency, they’d need to borrow the money or sell something quickly to round up the cash.

And though some of us can legitimately point to low earnings as a reason for not saving, for many of us, it’s a matter of poor money management — namely, failing to create and follow a budget.

According to a recent study by U.S. Bank, only 41% of Americans use a budget even though it’s one of the most effective ways to keep track of our finances. This data is only a slight improvement over a 2013 Gallup poll, which showed that just 32% of U.S. households maintain budgets.

But there is some good news here. If not having a budget is the reason you’re not saving, it’s a relatively easy problem to fix.

What can your budget do for you?

You may be wondering why you need a budget to save money, and the truth is, technically you don’t. If you’re earning so much money and spending so little of it that saving a chunk of cash each month becomes a given, then maybe you’re among the lucky few who don’t need a budget to manage their expenses.

But for the rest of us, keeping tabs on our spending can be far more challenging, especially if we’re living reasonably, but not aggressively, below our means.

Think about all the things you spend money on each month. There’s housing, transportation, health care, utilities, entertainment, and food — and those are just the big ones. Some of us have several dozen spending categories to account for each month, from gym memberships to magazine subscriptions, and even those smaller expenses can really add up.

That’s why having a budget is crucial. Without one, you won’t know how much you’re spending, and you’ll have an even tougher time identifying opportunities to cut back. On the other hand, if you list all of your expenses out line by line and total them up, the numbers won’t lie. You’ll see exactly where your money is going, and from there, you can find ways to free up cash to increase your savings.

Getting started with budgeting

While the idea of creating a budget may seem daunting, it’s actually a fairly simple thing to do. There are a number of free programs, like mint.com and budgetsimple.com, that can help you track your expenses, or you can use this handy budget calculator to see how much life tends to cost you.

Once you’ve identified your various expenses, start tracking them month after month to see how much you’re spending in each category on average. While some line items, like your rent payment or cable bill, might stay the same, others, like food, entertainment, and electricity, are subject to change. It’s important to establish a precise average for these categories so that your budget is as accurate as possible.

Also, review your old bank and credit card statements to check for annual expenses you might need to pay for up-front. For example, if you pay your homeowners’ insurance once a year and it costs $600, you’ll need to budget $50 a month for that expense. Failing to do so could otherwise throw you for a loop when the time comes to write out a $600 check.

Finally, make sure your budget includes a line item for savings. Ideally, you should aim to save at least 10% of every paycheck, and the more you can sock away, the better. If you’re truly struggling financially and don’t see a way to hit that 10% goal, start small and work your way up. Saving 1% of your paycheck is better than saving nothing at all.

Don’t just set it and forget it

One more thing to remember about budgeting is that it’s an ongoing process. Your expenses might go up (or down) over time, so don’t assume that the budget you create today is the same exact one you should follow a year from now. Say you commute by rail and the cost of your monthly pass increases by $40. If you don’t adjust your budget to reflect that change, you risk falling short on your savings goals.