Are You Spending Too Much or Earning Too Little? Here's The One Way to Know

It’s one of the main reasons we sit down to review our budget: One way or another, the math isn’t adding up. But, according to Tiffany Aliche, a financial educator and author of Get Good with Money: Ten Simple Steps to Becoming Financially Whole, if you find yourself coming up short on cash month over month, you’re either spending too much or earning too little. So, which is it? Aliche—who recently partnered with Credit Karma to share advice about the best methods to achieve your financial goals—has developed a foolproof way to analyze your budget so you know the answer to this question at a glance. Here, how to calculate exactly where you stand.

First, take a peek at your bills. You know that budget you put together way back when? The one where you spelled out all the essential and non-essential expenses that help you make it through each month? Aliche wants you to start by zeroing in on the bills, i.e. any expense you’re obligated to pay because you have a contract. (This includes everything from your mortgage or rent…to your cell phone bill.) Next to each one of those expenses, put the letter B for bill.

Next, notate any utilities. Yes, these are still bills, says Aliche, but a utility bill is something that fluctuates upon your usage. (Think your electric or water bill or oil your oil and gas.) Place a U in front of the B for bill so it says UB for utility bill. (FYI, you’ll probably only have three or four UBs total.)

Everything left is considered a “choice” expense. Now that you’ve separated out your bills and utility bills within your monthly expenses, all the charges that remain should be cash or “choice” expenses, according to Aliche. Mark those with a C.

Now it’s time to assess. If you look at your budget and see that most of your money is going to Bs and UBs, the writing’s on the wall: You have a “don’t make enough” issue. That means that most of your money is going to your obligations. (Aliche discovered this to be the case about her own budget way back when—it led her to take on a couple of side hustles like tutoring and babysitting to boost her bottom line.) But if your budget shows mostly Cs, then you have a “spend too much” issue. In other words, you do make enough, but you may need to reevaluate where your cash is going. (We see you, Amazon.)

Of course, another aspect to consider as you’re making adjustments to your budget and spending habits is savings. In other words, if you have mostly Cs, consider filtering more into your emergency fund or another savings account so you have cash set aside for a rainy day.

Bottom line: Frugality can be a virtue, but if you’re constantly having to rework your budget to survive the month, it’s good to get a grip on the reason.