Budgets are one of those things that are great in theory, but the reality leaves a lot to be desired.
What we’re (not) taught
I think a lot of the problem is the way we’re taught to do a budget:
– write out what you earn
– write out what you spend money on and how much you spend on it
– play around with changing the numbers until they all add up
And then, not surprisingly, the end of the month comes around and your plan didn’t work out. Because we were never taught how to make a realistic budget, a probable budget, a budget we can implement.
So here are the 3 biggest reasons that I see budgets fail:
#1: Failing to plan for the unplannable
Let’s say you’ve listed out where you spend your money and how much you think you spend in each area. First, be sure you’re tracking your expenses because if you aren’t, chances are your numbers are way off. Everyone’s are. Mine too. That’s why I keep track now.
When you list out your spending categories in your budget, you probably include rent, food, utilities, transportation, and hobbies, right? What about irregular purchases? If you take a cab home from a club once or twice a month, do you have a category for that? If you know you’ll be buying a new bed next year, have you budgeted for that?
And don’t forget about those random expenses you don’t see coming. They’re the things that, when you look back on your last 6 months of expenses, you say: “Oh, I don’t need to include that, it was just that one time.” Uh huh. The thing is, even if that was just once, something else was also just once. There’s always a random thing that was just that one time. You need to budget for those.
This isn’t the same as your emergency fund. That’s for big emergencies, like a sudden car repair or medical expense. Your miscellaneous category is for that unexpected baby shower gift, replacing the lamp you accidentally broke, or a tattoo you randomly decide to get. These things aren’t emergencies, they don’t fit into your budget anyplace else, but you need to have the money available to pay for them.
When you don’t plan for the unplannable, you run out of money before the end of the month. On the other hand, if you find yourself with fewer unplanned expenses, just carry that money over to the next month. If you continue to have extra funds, you might be able to budget a bit less and throw the extra dough into your nest egg. So you either use the money and avoid budget shortfalls, or you don’t use it and it goes into your nest egg – it’s a win-win!
#2: Failing to prioritize
Based on what we’re taught, most of us budget for what we want to have happen. And it seems perfectly reasonable because we’re looking at a spreadsheet or a piece of paper. It’s not the reality.
It’s like my to do list. I have great intentions, but too often I write down what I want to do today. I usually don’t consider just how long each item will take; if I did, I’d realize I’m trying to cram 30 hours of stuff into 6 hours and I would instead prioritize the most important items.
Your budget is the same: it’s all about priorities. A common reason I see budgets fail is because they aren’t prioritized. They’re all stick and no carrot. It looks good to say you’re going to cut back on your expenses in all areas, but is it realistic? Will you do it long term? Will you be happy if you do?
The numbers in your budget might add up, but if you stretch yourself too thin, you’ll burn out and get tired of it.
Instead, ask yourself: “What are the most important things in my life? What makes me the happiest?” Then do your best to put more money towards those. And they might not be immediate items. It might be that saving for a house is what makes you happy, so when you cut back on dinners out, you need to remember you’re doing it for your house. Or when you do yoga with YouTube you’ll remember you cut back on classes so you can pay off your debt faster and have the joy of living debt-free.
And remember, this how to plan to spend your money right now. There’s no law saying you can’t change your mind later. This year might be all about concerts and debt payments. Next year might be all about tennis lessons and saving for a house. You can’t do it all at once, so prioritize for the now.
#3: Failing to change behavior
You finally have your budget. You’ve planned for the unplannable and you’ve prioritzed to focus on only the things that matter most to you (and those you can’t avoid.) Congratulations!
Now what are you going to do about it?
Because it’s not enough to say you’re going to cut back on dinners out. You need to plan some meals to make at home, buy the ingredients at the grocery store, and schedule time to cook. If you don’t, you’ll just end up ordering takeout again.
Taking fewer cabs and Uber rides is a good idea, but if you don’t buy a bus pass today or fix up your bike, you’ll end up taking Uber when you’re too tired to walk.
It feels great to decide to pay off your credit card debt faster, but if you don’t have plan for putting that money aside, it might accidentally be spent on something else.
If you keep doing what you’ve done before, you can’t expect a different outcome. But all too often, that’s what happens. If you want a different outcome, you need to do things differently. And it’s not as hard as you think!
Don’t try to change everything at once. That’s too much. Change one behavior per week. And make a plan. Write out each change you’d like to make, and how you will make it happen. Do it now and start slow.
This week, cook one extra meal at home. Next week, buy a bus pass. The following week, set up an automatic transfer from your checking account to a new account you’ll use just to pay down your debt. Keep making small changes and you’ll be amazed at the results!
Why I don’t like budgets
At this point, you’re probably shocked to hear that I don’t like budgets. But if you look back over all of my posts so far, you’ll see that I never discuss them. Budgets aren’t mentioned anywhere in this site’s name. I think budgets can serve a good purpose, but they frustrate me.
It’s too easy to fail at budgeting for the reasons above and for others. Then when someone almost inevitably fails, it makes them reluctant to continue working to improve their finances.
It makes sense. You try the thing that you’ve always been told is the best and only way to do it. You fail. You give up. I don’t blame you.
Or you fail, but you keep at it without knowing how to fix things, and you don’t see your financial situation improve.
So many people give up when they could have succeeded, if only they’d had better tools.
Budgets and you
Budgets aren’t for everyone, but if you like them, go for it! Just be sure to avoid the pitfalls above. Then please come back here and let me know how you’re doing in the comments! And ask any questions you have – I’ll be glad to answer them.