You’ve taken the initiative. You’re putting together a budget.
It’s time to start turning your finances around and build your savings!
There’s just one problem. It never works!
You might start a budget, but you can’t ever seem to stick to it!
Your intentions were good. You HAD motivation, but it disappeared. Or, what you have on paper isn’t even close to what you spend in reality.
I’m going to count down the top 9 reasons for a failing budget. Better yet, I’ll tell you what you can do to reverse each and every one.
#9: You’re Not Tracking Expenses Consistently
It doesn’t do any good to build a budget if you’re not going to track your expenses on a regular basis.
You’ve seen your bank statements. The transaction description is about as general as it gets.
It’s hard to remember even yesterday’s expenses, not to mention something you bought a month ago!
In my experience, going any longer than a week between looking through your expenses is too long.
Spend 15 minutes, once a week. Set your calendar to it or ask Alexa to remind you at a specific time.
Don’t miss it. Not even once, or you’ll have trouble staying on track.
#8: You “Set it and Forget it”
While writing down all of your expenses is a good thing, it’s only the beginning.
If you think that by this very exercise, you’ll be able to stick to it, you’re dead wrong.
As a matter of fact, what you wrote down is likely not even close to your true spending habits.
“Budgeting” is much more than knowing where you’re money is going in a single moment in time. It changes and evolves.
Being aware of your spending is ongoing and ever changing. Keep up with it and track it as it changes so you can make small corrections a long the way.
#7: You’re Not Including Everything
I have a number of expenses that are automatically deducted on an annual basis. It makes sense, because it’s often a cheaper way of paying for something.
Car insurance is a good example. I don’t pay this annually, but I do pay for it 6 months at a time.
If you’re only looking back 30, 60 or 90 days, you’ll likely miss out on a number of these.
When you’re building your budget for the first time, look back a full year.
While you likely won’t remember what most of the transactions were for, you’ll certainly recognize an Amazon Prime membership, car insurance premium, property taxes, etc.
You’ll being doing your budget a huge disservice by not including everything.
#6: Your Budget is Too Rigid
How many of your expenses are truly fixed?
If an expense is completely fixed, it means it’s the same amount of money each and every month. While that does happen, it’s not very often.
Most of our expenses fluctuate based on use, taxes, fees, and who knows what else.
Once you’ve identified where you’re spending your money, leave a little room for fluctuation.
We recommend 5% of buffer room before deciding what’s left for paying down debt or building savings.
If you have $500 left after your expenses, only use $475. Leave $25 (5% of $500) for fluctuation.
You might even want to increase this to 10% to be safe.
#5: You’re Not Prepared for the Unexpected
This is a very common problem with MANY people in the US. You don’t have an emergency fund.
Think about this scenario…you’ve set your budget. You’re paying down debt or you might have bought a new home or new car because of the room you found.
The next thing you know, you have a large, unexpected expense come up.
If you don’t have your emergency fund in place, you now have to use a credit card, which comes with a monthly credit card payment.
Your budget is now broken.
While this can be a “chicken or the egg” situation, building at least a minimal emergency fund can mean life or death for your budget.
As soon as you find some room in your budget, the very next thing you should do is save up at least 1 month’s worth of your bare essential needs.
Do this even before you start paying down your debt.
#4: Your Expectations are Too High
Don’t think that each and every month, you need to stay within the framework of your budget. It’s not realistic.
As I mentioned before, budgeting is a long term process. The goal is to maintain an average monthly budget. It will fluctuate. You will have things that you want to splurge for.
Let’s say that next month, you decide that you need a new suit, or you are entertaining a large group of people for dinner.
Your expenses will naturally be higher. If you can foresee the expense ahead of time, cut back in one area or another to offset next month’s expense.
If you don’t see it coming, tighten up a little more the next month, or even two.
#3: Your Using Someone Else’s Budget
This is one that I really don’t understand. I guess to some degree I do, but it’s almost guaranteed NOT to work.
We all need some level of guidance with money. There are some people that try to fit their budget, within certain guidelines given to them by someone else.
We get a lot of questions like, “how much should I be spending on groceries?” or “what is the ideal mortgage for my budget?”.
Everyone’s budget is different. I can’t tell you that you should be spending $700 per month of groceries or that your mortgage should equal 30% of your monthly income.
We all live in different areas of the country. We all value certain things over others.
I have two children and you might have three, or zero.
You might be two miles from the nearest gas station and your co-worker is only 1/2 a mile.
Start simply by deciding what your needs are. From there, you can back into you budget based on your habits, needs and other variables.
Don’t worry so much about how much you should be spending on this or that.
If you need to make room, decide where you’re willing to cut expenses and where you’re not.
#2: You’re Only Budgeting For Your Bills
I think this is pretty common. You start by writing down all of your bills. You then write down how much each bill is in the last month or two.
When you’re done, you add it all together…and bada bing.
Well, I think you probably know where I’m going with this. You’re missing a TON of expenses!
There are bills and there are expenses. A bill is what you’re committed to paying, either by usage (like a water bill) or by a previous commitment (anything set up on auto-pay).
Expenses are EVERYTHING you spend money on. Your discretionary, in the moment spending, your bills, everything.
By not focusing on everything you spend money one, you won’t truly know if you’re living within your means.
The “in the moment” spending is what usually puts us over the edge into credit card debt. If you’re not paying attention to it, how will you know that it needs addressed?
Include EVERYTHING. Don’t skip a single transaction when tracking your expenses and building your initial budget.
If you need help lowering your expenses, read An Easy Way to Budget For Your Goals.
#1: You Don’t Know Why Your Budgeting
Of all the reasons for a failing budget, this is easily #1.
You or maybe your spouse is a habitual spender. Always eating out for lunch and buying trinkets and other useless things.
You probably have storage issues in your home too. Too much “stuff” and nowhere to put it.
This is simply a lack of knowing why you’re budgeting and saving in the first place.
If you haven’t taken the time to sit down and think intentionally about what your goals are, this is probably your problem.
Without having something greater to look forward to or strive for, why would you want to save?
What’s the point? If you’re not looking forward to something, you’re going to try and find some level of excitement by buying “stuff”.
It feels good, even if for a moment.
But, soon enough, you’ll have that empty feeling again and will want to go buy something else.
Sit down and really think about what your “ideal life” looks like, before you even start to build your budget.
This will be the driver, the motivation you need to continually make smart spending decisions.
Without something big to compare your expenses to, what will make you decide if it’s worth the money?
It’s easy to see why so many people are in debt or without savings. It’s not entirely your fault, either. There isn’t a single way to do it. We’re all just forced to figure it out for ourselves.
To learn more about how you can build a budget, and stick to it, just let us know how to find you and we’ll give you everything you need to know.
You can also join the 7-Day Boost Your Savings Challenge to clean up your budget and find room for extra savings.
Sports Fan, Movie Buff, and Anything Outdoors sums it up. Brad loves spending time with his wife, Ashley, and their two boys. He helps empower people to take control of their money, bringing them the confidence to build the life of their dreams.
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About Matt & Brad
They are identical twins and money experts. Matt and Brad Ruttenberg have, combined, over 2 decades of experience as financial planners. They are known for simplifying money and helping others go from living paycheck to paycheck to thriving financially.
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This communication is strictly intended for individuals residing in the states of Florida, Michigan, Arizona, Nevada, New York, Ohio, and South Carolina. No offers may be made or accepted from any resident outside the specific states referenced. Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. The Money Twins and Ruttenberg & Company are not affiliated with Cambridge.