Why Budgets Fail

We’ll let you in on a little secret, most people have a really hard time executing their budgets. The reality is that we are all only human, and sticking to budget isn’t easy. That being said, there are some simple ways that you can keep your budget on track if you just know the pitfalls to look out for. We’ve pulled together a round-up of some of the most common reasons why budgets fail along with tips and tricks to help you succeed.

Your initial budget projections were off

One of the most common reasons why budgets fail is because your projections about how much you have coming in and going out each month were off. This is an absolute no-go if you want to have a budget that you can actually live up to.

We either miss some expenses or underestimate how high they will be.

How do you overcome this?

Watch out for annual expenses. Not all expenses happen monthly. Not all expenses happen monthly. It is important to include a monthly allowance to fund annual expenses like your car insurance, property taxes, school fees, etc.  While our budget spreadsheet has a detailed list, you may have unique annual items you spend money on. 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 carrying out a 30-day spending plan. This technique forces you to spend a whole month meticulously tracking your income and outgoings. Most people are surprised to find that their actual spending habits vary quite a lot from where they think their money goes.

Have a miscellaneous category. Every budget needs a little wiggle room. Sometimes prices increase, you need to buy an extra birthday gift, or you invite people over for a weekend BBQ.  A small miscellaneous category can provide the wiggle room you need, so even a small expense doesn’t put you in the red.

You don’t have a focus

Budgeting isn’t hard, but it can be frustrating and demotivating. If you don’t have a clear 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 your budget, spend some time writing down exactly what it is that you hope to achieve by going through the process and when you want to achieve it. In our guide to creating a budget in 6 simple steps, we suggested that you write your goals down and put them somewhere that you will see from time to time. If you want to reduce debt, write down your target balance for every of the next twelve months and check in. If you make it, you’ll feel motivated to keep going. If you didn’t, don’t get discouraged. Go to the last step of the budget process – 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.

You’re using the wrong approach

We’re all different, and what works for one person won’t necessarily be suitable for another. Because of this, ongoing budgeting can involve some trial and error to find what works for you.

Use the right budgeting system. You can manage and control your monthly budget by tracking expenses manually on the spreadsheet we provide, using the envelope system or having dedicated bank accounts for different expense categories. We’ve compiled a list of some common budgeting systems to help you decide which is best for you.

Check how you pay for things. 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. Automate bill payments, so you don’t forget to pay them on time.  Pay a portion of your bills every time you get paid even if it’s before the bill is due, so you are sure for necessities before wants.

You forgot about the unexpected

Have an emergency fund. Cars break down. Your hours can be reduced. If you don’t have an emergency plan to fall back on, your budget is unlikely to be able to cover the difference.

If you do have to dip into your emergency fund, remember to allocate some of your future budgets to replace it so that you don’t end up out of pocket for the next emergency.

Have a ‘fun’ category. This may seem like a strange item to put at the top of a budgeting blog about debt reduction or improving savings, but it is often the number one reason why budgets don’t succeed. If you don’t allow yourself some room to enjoy some leisure or a few little extras, you are more than likely going to give up. Every individual in your household should have a ‘fun’ budget that allows them to spend however they choose, whether it’s to purchase the odd café latte at Starbucks or to attend a movie with friends. The budget amount can be small and reasonably within your means, but make sure something is allocated for everyone.

If you have a hard time spending on yourself without feeling guilty, then you might find it helpful to try out zero-based budgeting. This technique basically means that every dollar of income you have coming in must be accounted for so that at the end of the month you have zero dollars left to spend. Before you get excited, no, that doesn’t mean that you get to spend all of your money. It means that you decide at the beginning of each month exactly where you are going to allocate your hard-earned cash, and then you stick to it. If you have allocated $100 to your restaurant fund for the month, then by actually spending that money you are simply sticking to your budget. Rather than feeling guilty for having that girls’ night out, with your zero-based budget you can spend your money stress-free, safe in the knowledge that you’re only ever spending within your means.

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 behaviours 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 make adjustments along the way. You will achieve your financial goals before you know it! Good luck!