3 REASONS YOUR BUDGET ISN’T WORKING
Understanding where your money goes is the foundation for creating healthy money habits and reaching your financial goals. However, nearly 75% of Americans say they don’t follow any sort of budget at all.
There are many reasons why individuals may not budget, whether it be a lack of time, effort, or knowledge. It’s even common to feel discouraged or annoyed if you can’t stick to your budget, or if it doesn’t immediately save you money.
Maybe your budget just isn’t working for you anymore, but that’s okay! Keep reading to understand three common reasons why budgets fail, and how to avoid these mistakes when creating your own budget.
Your Budget is too Restrictive
One of the most common reasons why budgets fail is because individuals are creating budgets that are way too restrictive. Sticking to a restrictive budget is nearly impossible because it feels like you have to continuously deprive yourself to meet your goals - which is not true.
Budgeting is often compared to dieting because they have similar psychological effects on us. Essentially, you are making yourself immediately change your habits and cut out certain items in order to reach a certain goal. Think about why most diets fail: if you tell yourself you can’t have something, you want it even more. And once you break your diet, you feel the need to overcompensate and end up “binging”.
It’s the same when it comes to your budget. Forcing yourself to completely eliminate the things that bring you joy, like your daily coffee runs or dinner with friends, could lead to feeling unhappy. A budget that makes you feel unhappy is not sustainable, so it’s important to not restrict yourself too much.
Tip: Figure out one or two purchases that are the most important to you, and prioritize those in your budget. For example, I prioritize thrifting clothes and going to breweries with friends, so I create space in my budget to do these activities guilt-free.
2. Your Budget isn’t Realistic
Often people will create an “ideal” budget that ends up being successful because it is completely unrealistic. Being honest with yourself about how much things actually cost and how much you can dedicate to certain categories is necessary to stick with a budget.
In an ideal world, I would spend very little on groceries and going out to eat, but unfortunately, it costs money to eat! Telling myself I will spend $40 on groceries and eating out this month sounds nice on paper, but that is completely unrealistic. Giving yourself a challenging goal is alright, but avoid setting completely unrealistic goals just to exceed them each month.
Tip: Track your expenses for a month and determine how much you are spending in each category. Are there certain categories you can cut down to put money towards more meaningful categories? For example, in college, I was driving my car to class and paid for parking each day for about $3-8, versus taking the free bus that took a little longer. A couple of bucks here and there didn’t seem like a lot at the moment, but seeing that I would spend over $100 a month on parking was completely shocking. For me, this cost was completely avoidable, so I started taking the bus and got to spend that money on things that brought me more joy - like coffee!
3. Your Budgeting Method Isn’t Working
There is no right way to budget your money. Everyone has different lifestyles and organizational styles, so it’s important to find the technique that works best for YOU.
The three most common budgeting techniques:
The 50-30-20 rule: Allocate 50% of your after-tax income to needs, 30% to wants, and 20% to savings. Check out my blog post “What is the 50-30-20 rule?” which dives deeper into this budgeting technique.
The Zero-Based Budget: Allocate all of your income to your needs, wants, and short and long-term financial savings and goals. The goal is to have zero money left over after dedicating your income to these expenses each month.
The Two-Account System: Have two checking accounts, one for bills and one for spending money. The first account is for expenses like housing, utilities, insurance, and your car loan. The second account can be for all other spending, like shopping or meals out at restaurants.
Tip: There are many budgeting tools on the market designed to help track your expenses and stick to your budgeting goals. My personal favorite is the Rocket Money app for tracking my expenses, but there are many other options out there. You can even manually track with a spreadsheet if that works best for you!
