Living on a budget is important because it allows you to make sure your money works for you. When you plan out where your cash will go, you can prioritize things like saving so you aren’t broke as a senior and can put limits on spending for less-necessary items such as dining out or your DVD collection.
But just having a budget doesn’t actually do you any good — you have to stick to it if it’s going to be an effective money-management tool. Unfortunately that can be easier said than done, especially if you make mistakes during the budgeting process.
If you find you’re consistently overspending and not sticking to your plans, there are probably a few key reasons why you’re having so much trouble. Here are six possible explanations for why living on your budget just isn’t working for you.
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1. Your income is just too low to support your lifestyle
In most cases, it’s possible to make a budget work by being smart about how you allocate your dollars. But sometimes your income is too low or your expenses are too high and there’s simply no way to make the numbers add up. If you make $2,000 a month and are paying $1,800 a month for rent, something obviously needs to change.
Ideally your spending on the essentials — including shelter, transport to work, clothing, and food — shouldn’t exceed around 50% of your income. That would leave you 30% to spend on wants and 20% to allocate towards all your savings goals (this is called the 50-30-20 budget). If you can get close to that, you’re OK. But if your fixed expenses are taking up 80% of your income, you need to make some big lifestyle shifts.
If your income can’t support your lifestyle, some options to consider include moving somewhere cheaper, getting a roommate, getting rid of your vehicle if you don’t really need it, or increasing your income by asking for a raise or taking on a side-gig. You’ll have to decide which of these steps would be most effective for you if you can’t make the math work.
2. You didn’t track your spending before you made your budget
A budget shouldn’t be an aspirational document that’s nothing more than a wish-list of what you hope you can do with your money. It should be realistic given your day-to-day life. The only way you can know if you’re making a budget you have some hope of sticking to is to figure out where your money is currently going.
You should ideally track your spending for at least 30 days by using an app such as Mint or by inputting all your transactions into a spreadsheet. Once you know what your actual outlays are, you can see what realistic cuts need to be made and where you can tweak the numbers to have enough money to live on now and to save for your future.
3. You failed to plan for regular irregular expenses
Tracking your spending to get an idea of where your money is going is a good way to start making your budget, but you can’t stop there. After all, if you track your spending in June, this doesn’t account for your car inspection due in September, your daughter’s birthday in May, or the December holiday season — all of which will likely cause you to incur costs you didn’t plan for and potentially reach for your credit cards.
When making your budget, sit down and look at a calendar or look at your past year’s credit card statements to see what types of irregular expenses come up on a routine basis. Then account for those throughout the year. Instead of having to suddenly come up with $1,000 cash in December — and probably blowing your budget entirely — plan to save $84 a month in a holiday savings account.
If you have money set aside for all these irregular expenses that you’re bound to encounter, they won’t cause you to overspend during the month they come up.
4. You didn’t leave yourself any wiggle room
Unfortunately, no matter how careful you are with planning, something unexpected is probably going to come up at least once during the course of an average month. If you’ve given every single dollar a job to fulfill, you won’t have anything left over to pay for these surprises. While you should have an emergency fund you can tap for big unexpected bills, you don’t want to take money out of these funds every month just because you have a small tab to pay.
To make sure you don’t end up overspending, have a line item in your budget labeled “surprise!” Depending on your income, this could be as low as $5 or as much as $100 or more — just so you have a bit of flexibility. If you don’t end up spending the surprise fund in one month, save it for the next one so you’ve got an even bigger cushion.
5. You haven’t updated your budget since 1982
A budget is a living document that needs to evolve with your lifestyle. You can’t expect that a budget you made last year, or even six months ago, is necessarily right for your needs today.
So sit down once every month or two, see how you’ve done with sticking to your plan, and make any adjustments or tweaks that need to be made to account for differences in your current circumstances.
6. Your partner isn’t on board
If you’re married or seriously involved with a romantic partner, it’s going to be much harder to stick to your budget if you don’t have buy-in from the person you love. Obviously big issues will arise if you have shared accounts and only one of you sticks to your budget.
But you could also have problems if you maintain separate accounts but don’t consult your beloved about your budget. If you plan to spend $10 on dining out but your paramour wants you to go out for dinner twice a week — and you need to pay your half of the bill — this is going to become either a relationship or financial issue (or both) very quickly. So make sure you talk to the person you love about your financial plans so you can get on the same page.
Make a budget you can actually live by
If you solve these six big potential problems, hopefully you can create a budget that you can actually stick to. It may take some time and effort to make a financial plan for spending and saving that actually works for you, but doing it is worth the effort — assuming you don’t want to end up broke with nothing to show for all your work.
View more information: https://www.fool.com/the-ascent/banks/articles/6-reasons-your-budget-is-impossible-to-stick-to/