Simple Tips to Fix a Failing Budget
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For the longest time, I was the queen of failing budgets. I sometimes still am, but for the most part, I’ve finally gotten things to a point where my budget actually works!
I used to think to myself “Yeah, I can probably spend $100 on XYZ for the entire month”. No problem.
Only there was a problem. Every. Darn. Time.
I couldn’t figure out why my budget kept failing when I had worked so hard to plan and cut back to reach our savings goals. But I like to think I’ve finally got it down and have developed a realistic budget I can stick to.
So if you are wondering how to fix a failing budget and you don’t have any idea where to start, you’re in the right place. And if it is any consolation only 41% of Americans actually stick to their budget, so the problem of a failing budget is quite widespread.
But that doesn’t mean you should just accept budget failure month after month. Budgeting is a critical component of achieving success with your finances, so it is so important that you get this under control so you can keep moving towards your financial goals!
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Why Budgets Fail
There are a few reasons why budgets fail. The underlying theme is that it isn’t the budget’s fault. It is our fault as planners. So if you’re tempted to say “budgeting doesn’t work”, bear with me and see if one of these reasons could be your underlying problem.
When I looked at my own budgeting failures, I was able to see two clear reasons for those failures. And once I became aware of them, it made it so much easier to get back on track so we could start saving more money.
Once you identify the problem, it might be easier to get a handle on things and get that budget on track so you can enjoy all the benefits of budgeting.
1. Your Budget Isn’t Realistic
This reason for budget failure has been one that I ran up against month after month. The end of the month would roll around, and I would feel like an utter failure.
I mean, I couldn’t even stick to a simple budget. What was wrong with me?! Sound familiar?
The thing I started to realize though is that my budget simply wasn’t realistic. The main issue I was having was not planning for those incidental things that while we technically not necessary were still things we were spending money on.
I had a tendency to under-budget for household supplies, Christmas expenses, period vehicle maintenance costs, etc. In the long run, these things seemed to come up every month and throw my “perfect” budget out of wack.
The thing is though, there is no such thing as a perfect budget. Things will always come up that you hadn’t planned for. Maybe they aren’t necessarily emergency fund worth expenses, but you do have to account for them.
That is why I have started adding a bit more of a buffer into my budget. Even just adding a couple hundred dollars to the budget has helped it be much more realistic.
We don’t always need that buffer, but on the months we do, accounting for it helps ensure we are still on track and not over budget. If we come in under budget because we didn’t need the buffer that month, even better!
Being more realistic and realizing that there is only so much you can cut out of a budget may be your issue. But as it turns out, there are even more reasons why your budget may fail.
2. Not Tracking Spending
Another reason you might find yourself with a failing budget month after month is that you aren’t tracking what you are spending on a regular basis.
Joel and I made this mistake for a couple of months after I first started working. Compared to when I was in grad school, we sure felt like we were rich. It led us to be really lax in our budgeting and it definitely cost us.
After a few months, I was suddenly hit with the realization that we had barely contributed anything extra to Joel’s student loans despite the fact that we had just doubled our income.
NOT GOOD!
We had always been good about budgeting while we were a one-income household, because we HAD to stick to a budget. Going over was something we literally couldn’t afford at that point.
Our issue after I started working was that we stopped tracking our spending! We had no idea where our money was going on a regular basis.
When I later went back through our credit card and debit card statements, it became apparent that all that money was getting slowly wasted away on the little purchases. We weren’t spending hundreds of dollars all at once, but those little things added up to be big money very quickly.
Thankfully we realized our mistake fairly quickly and got ourselves back to budgeting with our handy dandy spreadsheet. But some people go their WHOLE LIVES spending aimlessly, always wondering why they are broke.
Don’t let this be you!
If your budget is failing because you don’t keep track of your spending on a regular basis, PLEASE grab my spreadsheet (well, actually Joel’s spreadsheet, because he is the spreadsheet master).
I usually record our purchases as soon as we make them, but I don’t ever go more than a week without entering in our spending. That way I always know whether or not we are on track.
And if we aren’t, it is much easier to get back on track when you had a few days or even a week of overspending than to try to salvage the budget in the last week of the month.
Consistently tracking our spending has been so amazing for us financially. There is no way we would have paid off $60,000 of debt in a crazy short amount of time if we weren’t watching where every dollar went.
3. Overspending Due to Not Delaying Gratification
This is where delayed gratification comes into play. We all want things. It is just a fact of life.
But for the vast majority of people, there comes a time when you want something you CANNOT AFFORD. If you buy it anyways, regardless of this fact rather than saving up until you can make the purchase, or forgoing it entirely, you are going to go over budget.
So maybe you have a realistic budget that includes your needs as well as some basic wants. (I’m not a fan of total deprivation, because typically it isn’t sustainable and life is meant to be enjoyed.) But if you are ignoring your budget in favor of instant gratification, the numbers just won’t add up.
How to Stop Impulse Buying
One great way to avoid impulse buying and stop yourself from winding up with a failing budget is to force yourself to wait at least 24 hours before making a purchase and preferably a few days or a week. The longer you wait, the more likely you are to realize that you don’t actually want a particular item as much as you thought you did.
If you go on to decide you do in fact want something even after taking time to really think about it, consider how it will play into the big scheme of things with your long term goals.
Will buying a new, $200 pair of shoes when the pair you have still works fine get you closer to the life you want for yourself? Or is it more likely to take you further from it?
Another thing I like to do is think about how many hours I would have to work to pay for something. Do you really want to trade a whole workday of your life for a trivial item? When you shift your thinking in this way it can help you steer clear of unnecessary purchases.
Ok, so after all that you STILL decide you want something; let’s say it is the $200 shoes. Deciding you want the shoes doesn’t mean you should just go buy them. Because you haven’t budgeted for them! Instead, you have a few options.
The first would be to forgo other things to buy the shoes. I don’t recommend this because, hopefully, your budget doesn’t include frivolous, large purchase spending as a line item. And you still have to eat and pay your bills etc. so you can’t cut from there.
(Side note, I realize that in some capacity shoes are a necessary expense. You can’t go walking around barefoot. But if you are like most Americans, you probably have multiple pairs of shoes and this purchase is a definite want instead of a need. Also, you can probably get a cheap pair that will do just fine.)
Building Discretionary Spending into Your Budget
The better option is to just budget for the shoes and save every month until you have enough to buy them. We do this by building discretionary spending into our budget. Each month we set aside $110 between the two of us for these unnecessary purchases.
Every month that money goes into a separate bank account. One labeled “Joel” and the other labeled “Kathryn”. That way we can always tell how much money each of us has saved.
Since Joel gets more satisfaction out of buying things than I do, he gets more discretionary spending. Now before the feminists come storming to my rescue (thanks, ladies and maybe some gents), rest assured, this was my idea.
The reason being I don’t need much spending money to be happy. My discretionary money is honestly so I don’t feel guilty for spending which is the exact opposite of the problem we are discussing here.
So if you have a partner, work it out in such a way that both of you will be happy. Things don’t always have to be 50/50 for them to be even based on each person’s unique personality and needs.
So you want those $200 shoes. Like REALLY bad. You check your discretionary spending account. But oops, you spent it all last month so the balance is currently $0.
That means if you get $50 a month for discretionary spending as part of your budget, you need to wait 4 months (and not make other purchases in the meantime) in order to be able to afford the shoes.
Now, the math will work and your budget won’t fail as long as you don’t give in to temptation before you’ve saved for something.
4. Fear of Missing Out
Can we talk about FOMO for a second? If you don’t know, FOMO stands for fear of missing out, and it is a very real cause of budget failure if you ask me.
It is pretty much the new name for “Keeping up with the Joneses”. Basically, it is a recipe for budget disaster.
You see your friends posting pictures on Facebook or Instagram of the vacation they just got back from, or the new car they just bought, and suddenly you feel like you should have these things too.
And I can’t count the number of times I have thought to myself after scrolling through Facebook, “What?! How can they afford a house? There is NO way we could afford to buy a house right now!”
If you try to keep up with everyone you see, you are almost guaranteed to have a failing budget. Sometimes our salary simply can’t support the kind of lifestyle we see portrayed in the media or even among our own circles.
Turns Out Americans Are Broke!
But the thing to remember is that most Americans have a lot of debt. Like a LOT of debt! The average amount of credit card debt according to a 2018 study by Nerd Wallet is $6,741.
Hm, sounds like the amount of a fancy vacation to me. And the average auto loan amount people carry? Over $27,000. Mortgage amounts come in at just over $185,000 on average.
So when you really look at the numbers, it turns out a lot of people can’t actually afford those fancy things you see posted on Facebook.
In a society that is obsessed with debt and “affording the payments”, it can be easy to brush this off and say, “Well everyone has debt, so that’s how it just has to be”.
Only, I’m going to let you in on a little secret. Not everyone has debt! And living without car payments and student loan payments and credit card debt is a very freeing way to live.
Don’t Let FOMO Wreck Your Budget
So if your budget is failing because of FOMO, I would urge you to take a look at what is really important to you. Find a way to budget for those things if you can, and look for more cost-effective alternatives if it would otherwise mean going into debt.
Maybe it means going for a long weekend camping trip in the mountains for just the cost of gas instead of flying to Europe for a week. (But can one really count camping in the mountains as “settling”? That has been our go-to activity for the last 4 years!)
Maybe it means continuing to drive your beater car that is paid off and runs great but isn’t the prettiest.
Maybe it is saving up for at least a 20% down payment or more for your house rather than putting less down and getting hit with PMI costs and a higher mortgage payment every month.
Don’t let FOMO be the reason your budget fails. Because to quote a parental figure you have encountered at some point in your life (probably in high school) “just because everyone else is doing it doesn’t mean it is a good idea.”
5. Not Using Sinking Funds
A sinking fund is a pool of money set aside to pay for large expenses that come up periodically. Things like car insurance, vehicle and home maintenance, Christmas expenses.
These expenses don’t always come up every month, but if you don’t plan for the months they will happen, you are almost sure to go over budget. And what’s worse, you may not have the money at all and have to tap into your emergency fund, miss a payment, or take out a loan to cover the costs.
Not something you want to do when a little planning can completely eliminate this issue.
Here is a quick rundown of how to use sinking funds to help keep your budget on track. Say your car insurance costs $600 every 6 months. (Yes I picked the easiest number ever to make the math simple).
That means, rather than getting hit with a $600 bill you can’t pay, you need to set aside $100 every month to pay for car insurance. Then, when the bill comes due, you already have the money set aside in your sinking fund account.
You have no problem paying the bill, and your budget is intact! Just remember not to think of your sinking fund as a “spending money” fund. That money has a specific job to do and it needs to be used for that purpose!
Having sinking funds is one of the easiest ways to stay on track with your budget. And if you set up transfers to savings to happen automatically, your life with will be even easier!
6. Not Paying Yourself First
In addition to sinking funds, another great way to help you stay on budget is to pay yourself first. This means that when you get that long-awaited paycheck, before you spend any money or pay any bills, you automatically transfer your target savings amount into a separate savings account.
Then, the money that is left over after saving your goal amount is what you have to spend for the month.
If you set your account up to automatically deposit money into either a savings or retirement account, you will be less tempted to spend more than you planned.
If you want to know more about paying yourself first, The Automatic Millionaire is an awesome book on this very topic. Plus it shows that you don’t have to be making crazy amounts of money to retire comfortably as a millionaire. Pretty cool stuff!
6. Not Making Enough Money for the Basics
I also want to quickly say, I know there are probably some people who are reading things thinking “None of this applies. I literally cannot put food on the table. What’s this lady talking about spending hundreds of dollars on shoes and fancy vacations?”
Sometimes life is hard and circumstances are not what we would hope for. I totally get that.
I honestly have been fortunate to never have been in that situation myself for any length of time. (Apart from the few months where there was no paycheck at all right after we got married). And I totally get that I have been EXTREMELY privileged to be able to say that.
So I don’t have much advice to offer on the subject without sounding like a phony. Some things to consider are looking for governmental or other assistance in your area to get you through what is hopefully a rough patch or saving money in any way you can.
Also, check out this guide to help you stop living paycheck to paycheck. It won’t be easy, but there are lots of great strategies there that may help you get back on your feet.
How to Get Back On Track for the Month
So if you find that you have gotten off-budget and the month is only half over, you may be able to get back on track depending on how much you are willing and able to cut from other areas. And also depending on how far over budget you’ve gone.
The truth is that if you are too far gone, you may not be able to salvage the budget that month. But that doesn’t mean you should just continue to spend willy-nilly for the remaining weeks.
If you continue to overspend, you’ll just wind up with more bills/credit card debt and less savings. So the first step to getting back on track is to STOP all unnecessary spending.
Then see if there are ways you can cut back on other areas. Maybe you make sure to turn off all the lights when they aren’t in use to lower the electric bill. Or open up your windows instead of using air in the summer if you can tolerate it.
Other ways to cut back include making smart purchases at the grocery store to eliminate unnecessary spending. If you want to go all out, you can eat for very little money, although it probably isn’t the best thing to do long term. Rice and beans anyone?
Think about the other bills and expenses you have and see if there is anything you can cut for that month to help get you back on track. If there isn’t, manage your spending for the rest of the month and do better next month by using the strategies I talked about earlier.
How to Fix Your Budget for the Future
It isn’t always easy or glamorous to stick to a budget, but doing so can set you up for a much better financial future. Heck, maybe you could even retire early by cutting out wasteful spending or kicking FOMO to the curb.
The best ways to avoid a failing budget are to 1) Make your budget realistic 2) Track your spending religiously 3) Delay gratification and save for purchases 4) Don’t let FOMO wreck your plans and 5) Plan ahead and use sinking funds 6) Pay yourself first.
If you still aren’t so sure about this whole budgeting thing, be sure to check out my budgeting 101 post and sign up for my free 5-day budgeting email course to walk you through all the steps to help you get to budgeting success!
Plus you can also get a really pretty spreadsheet (nerdy, I know). So if you’re feeling financially savvy, sign up below to eliminate budget failure once and for all!
How do You Plan to Fix Your Failing Budget?
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