Why Your Budget Doesn't Work

I've talked dollars and sense before, so you guys know by now, I think personal finance and full awareness of your money situation is crucial. I have been comforted and helped by my (some might say over-)organized spreadsheets and budget documents countless times, and taking the plunge to write a budget and shape up my money has had a really positive effect on my life. Knowing what you have—or what you need—without having to scramble through account statements and documents offers peace of mind in an emergency and can help you make big decisions quickly.

But budgeting gets a bad rap. To a lot of people, "budget" equals "broke," or is just way too complicated to fold into their routine. I'm here to sing the praises of a monthly budget, and set the record straight. If you've tried and failed to stick to a budget, consider that you may be making one of these big budget mistakes.

Six Reasons Your Budget Doesn't Work

1. You're writing amounts based on total guesses. 
How much do you spend on groceries per month, would you say? Now, go get your grocery receipts. How much do you really spend on groceries per month? Better yet, what does going out to bars, restaurants, or coffee shops cost you monthly? I'll bet that one adds up to a bigger number than you would guess.

The art of budgeting—that is, prescribing certain amounts of your anticipated guaranteed income to specific budget categories—needs to be based on real numbers. How do you come up with real numbers? You track your spending for at least a month (ideally, two to three months) prior to writing your monthly budget.

(P.S. – I made my budget template downloadable, if you'd like to try it as a starting point.)

But tracking your spending can have some risks of its own if you aren't careful with it. Which leads me to...

2. You're not counting the "random purchase" here or there.
You got your oil changed—that expense won't come up again for another few months. You had to pick up a gift for your sister's birthday—won't have another one of those till next year. Oh, and you had to replace your bathing suit after you discovered last year's summer left your favorite bikini in shambles—that's another annual purchase.

It's easy to convince yourself that those big(ger), one-off purchases don't come up all that often and they don't need to be factored into your budget. But once you start tracking your spending, you'll see just how often—like, pretty much every month—"something comes up." It's best to anticipate these items when you can, and roll those figures into your tracked and budgeted amounts to be best prepared.

3. You're not leaving wiggle room.
As we just learned, say it with me now, something always comes up. Budgeting down to the penny might work for one or two categories here and there. But stores and manufacturers change their prices, the cost of gas can fluctuate week to week, and sometimes even the best of us leave our coupons at home.

The problem with this can become even bigger, if you're like I was when I first started budgeting: Sometimes, all it takes is blowing a budget category by $1 to blow your entire resolve. A familiar refrain: "I've already gone over budget, what's the use in trying to stick to it now? BUY ALL THE THINGS."

Give yourself a spare dollar or two in your categories to account for these unanticipated fluctuations and watch your budget stay in tact.

4. You don't know your spending habits.
Did you know that every time you get on the road you have to stop for a cup of coffee? Have you ever noticed how every time you're standing on line at the grocery store you end up tossing a few backs of gum and a magazine into your cart? What about your habit of ending up with a few extra apps on the table every time you and your colleagues go to happy hour?

When writing your budget, you need to look carefully at your interactions and spending habits, and be honest with yourself. Sure, there is room to be aspirational—but the time to do that is not when writing your first budget ever. That is the time to be blatantly honest. You won't fix or change habits that you don't first acknowledge. Examine your habits and then allow for them, OR, depending on your financial situation, begin a weaning process to change them. But it won't happen overnight.

5. You don't anticipate your month ahead.
Some people find success in leaving their budget categories fixed every month—I'm not one of those people. I change up my categories based on what I'm running out of, what I need to buy, what trips I have planned, etc. For example, this June, I drove to and from West Virginia, to and from Philly and to and from a concert venue twice within that Philly trip, to and from Upstate New York, and to and from the Jersey Shore—on top of all my other usual driving. I would have been absolutely crazy to not change up my gas budget for a month like that. Similarly, I wasn't home on any weekend throughout the month, so my grocery budget looked a lot different too. For another example, this month I had to factor in a pair of running shoes. I wouldn't normally allocate $130 to my running budget, but I certainly had to this month. Most other months it sits at $0-$40 for the errant piece of apparel.

What are you running out of? Will you be replacing your shampoo and razor cartridges this month? Are you traveling for a friend's wedding? Are you planning to pay a race fee? Are you going on vacation and planning to bring home some souvenirs?

Consider all of these and other possible expenses before you write your budget and see how some categories swell and others shrink down to nothing. Some things may stay the same month to month—my "lazy food" category stays the same—but as life presents new things, your budget must adapt if you have any hope of keeping to it.

6. You're not tracking your spending.
This is, to me, the simplest part of the whole thing. But I know that a lot of people have trouble sticking to this practice. The blatant truth, though, is that you cannot hope to stick to your budget if you're not tracking what you spend and checking in periodically throughout the month. You can write down every expense in your phone or a notebook, use an app like iSpending or Mint, or save all your receipts (not recommended as you don't always get them, and they can get lost easily) and count them out every week. 

But the bottom line is tracking your spending is crucial to a successful budget from beginning to end. I use iSpending and take about 30 seconds after each purchase to punch it into my phone, and a few times a week I sit down and transfer those numbers to my spreadsheet. It doesn't take long, and the few seconds it does take are more than worth the peace of mind I have by keeping my finances organized and readable at a glance.

What are your biggest budget challenges? Is there anything you've been battling with in writing your own budgets? Or do you have any awesome budget-writing tips to share with the class? Please do!

Comments

  1. My budget doesn't work because I keep spending lol! xo, Biana -BlovedBoston

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  2. this is a fabulous, informative post! i know that i tried and tried to budget a billion times and always failed. i could be certain about bills and stuff, but grocery / petrol / shopping was something i always set a number for without any real knowledge or tracking, you know? i tried to track things, but the little things here and there would get forgotten and not tracked and then my budgets wouldn't match my bank and i would give up. the best thing i ever did was sign up for mint because it tracks everything so my lazy self doesn't have to, and there is absolutely no ignoring the transactions that way. super helpful. and of course, all the advice you gave me.

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  3. I use mint.com to track our spending and set up our budget. It's definitely a win-some, lose-some art, but since we've started using it a few years back, we've been much better at budgeting and saving!

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  4. You've won me over. I'm going to give iSpending a try, since I've already stopped looking at my budget google doc.

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  5. I've been budgeting as I do now for about eight or nine years? When I first started, I had no idea about the every once in a while (oil changes, etc) stuff. Now every blessed thing is in my budget, plus wiggle room. In the period between nothing in the budget and everything accounted for, I missed the importance of wiggle room.

    This is good stuff! Knowing where your money goes seems anal but is actually so freeing - you're less likely to get caught in a bad spot.

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  6. My biggest budget challenge has one name--my husband. I swear, he sometimes gives approximately zero fucks about the budget we set together but wonders why things get all out of whack. Managing money with someone else is HARD.

    These are fantastic tips. The personal finance community would be proud :)

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  7. I used to be the worst at not anticipate the coming month, except when it came to December/Christmas season. And the only time I was anywhere even close to staying on budget was after a month of writing down where every single penny went. I tried iSpending, but I didn't like it because I could only add up to 18 transactions (and I was trying to put in everything), but the notes on my phone worked just as well. Definitely great tips here!
    What's a "lazy food" category?

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  8. We have read this post and have heard you loud and clear! I'm currently in the process of tracking our expenses for the first month of living together and will continue to track as we establish our budget, both necessary and adjustable. Thanks again for explaining how I'm doing it wrong in the best and most polite manner possible. <3

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  9. Love, love, love this! My biggest downfall (among others) is not leaving wiggle room. I end up sabotaging myself because when things do come up I'm either way over budget as is, or I genuinely can't go because it WILL blow my budget.

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  10. I have the same problem as Biana, lol! No but really, my problem is that my spending comes in waves...I won't buy anything for a while (because I don't need to) but all of a sudden I'll need ALL THE THINGS. So yeah, I try to anticipate expenses the best I can but I can't predict everything. Luckily I have an "emergency" fund that I add to every month, no questions asked, and I'm pretty good about contributing to a savings account every month (some more than others).

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  11. Gosh I love this! Im saving this to re-read much slower and digest, if that makes sense. This is so much more than a blog post.

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  12. Hi! I am Pamela over at A Little Glitter. Kristen gave you a shout out during the Share the Love Link-Up I am hosting. It's nice to e-meet you! I want to say that I love this but budgeting scares the bejesus out of me. I need a budgeting coach that can follow me around and slap the expensive things I want to buy out of my hand before I reach the register, lol!

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  13. Hi! I am Pamela over at A Little Glitter. Kristen gave you a shout out during the Share the Love Link-Up I am hosting. It's nice to e-meet you! I want to say that I love this but budgeting scares the bejesus out of me. I need a budgeting coach that can follow me around and slap the expensive things I want to buy out of my hand before I reach the register, lol!

    ReplyDelete

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