Most people have a hard time executing or sticking to a budget. As a credit counsellor I talk with people every day frustrated about how their budget isn’t working for them. They want to know what they can do to get back on track without relying on debt.
I’ve pulled together a round-up of 7 common reasons why budgets fail along with tips and tricks to help you succeed at budgeting no matter what system you use.
Table of Contents
You don’t have a ‘fun’ category
This may seem like a strange item to put at the top of a budgeting blog by a firm that focuses on debt reduction, but it is often the number one reason why budgets don’t succeed. You can be too strict with your spending. If you don’t allow yourself some room to enjoy life and have a few little extras, you are more than likely going to give up. As long as you live within your means and meet your savings goals, it’s up to you to decide how you want to spend your money.
Every person in your household should have a ‘fun’ budget that allows them to spend money however they choose whether it’s to purchase the odd café latte at Starbucks or to pay for a favourite streaming service. The budget amount can be small but make sure something is allocated for everyone.
You don’t plan for unexpected expenses
Cars break down. Your hours can be reduced. If you don’t have any savings to fall back on, you won’t be able to pay for an unexpected expense without turning to more debt.
I’m not talking about enough money to live for three to six months in the event you lose your job recommended by most financial planners. I’m talking about a small slush fund to help you pay for an emergency vet bill, house repair, medical expense or childcare cost. Many people I meet use payday loans in these situations, which is a sure-fire way to ruin your budget. When you first start your budget, setting aside even $20 a week will help you build this small emergency fund in no time.
You are missing expenses
One of the most common reasons why budgets fail is because you don’t have a good starting point. If you don’t know where you are spending your money, how can you plan your bill payments or balance your budget without running out of money at the end of the month?
How do you overcome this type of budget failure?
Watch out for annual expenses. Not all expenses happen monthly. Be sure to include a monthly amount to fund annual expenses like your car insurance, property taxes, school fees, etc. Do a thorough check of your bank statements and old bills. This is where an online expense tracking app can help you find all the ways you spend money.
Avoid underestimating what you spend. A great way of doing this is by tracking your expenses for at least 30 days. A 30-day spending plan forces you to learn how much income you have coming in and what your expenditures are. Most people are very surprised to find that their actual spending habits vary quite a lot from where they think their money goes.
You don’t have a miscellaneous category
Every budget needs a little wiggle room. Sometimes prices increase, you need to buy an extra birthday gift, or you have an opportunity to upgrade something in your home at a good price.
This is different than your family fun category. This is for life necessities you may have forgotten to include in your budget. Even if you maintained a spending journal and carefully reviewed all of your old bills and statements, you may have missed something. A miscellaneous budget category can help with that. If you don’t need it, don’t spend it. Put the difference in a savings account for the time you may need it. At the end of the year, if you haven’t used this money, you’ve now got some bonus savings to allocate where you wish.
You don’t have a focus
Budgeting isn’t hard but it can be frustrating and demotivating. If you don’t have a clear financial goal in mind about exactly why you are doing it, it’s very likely that you’ll lose steam and give up.
How do you stay motivated to stick with your budget?
Write very specific goals and set reminders. Before you start trying to execute on your budget, spend some time writing down exactly what it is that you hope to achieve including setting a target date for you to want to achieve it by. If you want to reduce debt, write down your target balance for every month over the next twelve months and check-in. If you made it, you’ll feel motivated to keep going. If you didn’t, don’t get discouraged – revisit and revise – to a better target date.
Don’t try for too much detail. While you want to track all your expenses, you don’t need to plan down to the dollar. A category for groceries is fine – you don’t need to plan out by meal or by week. If you try to capture too much detail, you will quickly become overwhelmed with record keeping. Make your budget as detailed as you are willing to track.
Don’t set unrealistic goals. If your plan is to reduce credit card debt, allocate as much in your monthly budget towards debt payments as you can afford but recognize if you are currently only keeping up with the minimum payments, it will take a while. When looking for expenses to cut in your household budget, don’t overestimate how much you are willing to sacrifice. A successful budget is one you can realistically achieve.
All of these add up to a SMART goal: specific (what), measurable (how much), attainable (a realistic goal), relevant (what you want) and time-based (when).
You’re using the wrong budgeting approach
We’re all different, and what budgeting system works for one person won’t necessarily be suitable for another. Because of this, an ongoing budget process can involve some trial and error to find what works for you.
Some people like to track their details and record things. Others don’t want to record every dollar they spend. They just want to stay on top of their bill payments, pay down debt and start building some savings.
That’s why, at Hoyes Michalos we recommend two possible budgeting approaches:
- using our traditional free budgeting spreadsheet or
- automating and paying your bills as you get paid.
You’re using the wrong payment tools
It’s also important to use the right payment tool. If you don’t have control over your spending, it’s time to hide the credit cards. Use cash for spending or set money aside in separate envelopes or accounts designed for a specific purpose.
Automate bill payments so you don’t forget to pay them on time. Paying a portion of your bills every time you get paid even if it’s before the bill is due, ensures you pay for necessities before wants.
What happens if you fail?
Don’t beat yourself up if you slip up from time to time. It’s normal, and it happens to the best of us. The key is to spot the behaviours that are likely to steer your budget off track, and consciously try to curb them. If they happen once in a while, it’s OK. You’re already actively changing your behaviors so that they don’t become the norm, and that deserves a high-five.
Remember, budgeting is a learning process. Commit to learning from your mistakes and making adjustments along the way. If you do, you will achieve your financial goals before you know it! Good luck!