Building a budget is no small feat, and once it’s completed, it’s something you should be proud of. Yet, many people have trouble sticking to a budget, essentially throwing all their hard work out the window as a result of impulse buys, unrealistic expectations, or a lack of discipline. Here’s a look at some of the reasons budgets can fail and tips for making a budget you can stick to.
Why Is a Budget Important?
Budgets can help ensure that you have enough income to cover the things you need and the things that are important to you.
They are also one of the top tools to help you stay out of debt or rein in any outstanding debt you may already have. While it may seem like putting together a budget is a big hassle, it can be well worth taking the time to get it done.
That’s because budgets can help you focus on your short- and long-term financial goals, whether it’s simply having enough to pay your bills in a given month or setting aside money for your retirement. With a proper budget in place, you might find paying bills to be less stressful.
And budgets can help you decide which purchases are worth making and which you don’t actually need. Yet some people need a little more help sticking to their budgets.
Why Do Budgets Fail?
You’ve done the work to put together a budget, and you want to get your finances on track. Yet little things can cause a budget to fail, leading to overspending, missed bill payments, and debt. What causes budgets to fail? Here’s a look at some of the most common reasons:
Lack of Discipline
Sticking to a budget takes a lot of self-discipline. You’ve carefully determined how much of your income you need to cover necessary expenses, and you’ve set aside the rest to be divvied up among savings goals, making extra debt payments, and discretionary spending, such as restaurants or entertainment.
Though people get excited about putting their financial house in order, it can be easy to slip back into the lifestyle they led before putting a budget in place. If you already live within your means, that might be okay. But if you’re a habitual overspender, it’s important to recognize that those behaviors have to change to keep your budget on track.
It may feel like budgeting and turning your financial life around requires drastic measures. For example, if you’ve been living beyond your means and want to rein in your spending, you may decide you must go from spending more than you make to living off half your income. But that may not be a viable option, at least at first. It’s important to set achievable expectations.
Discounting irregular expenses
While building your budget, you probably remember to factor in regular expenses like your monthly electricity bill and grocery shopping. But it can be easy to forget to include expenses that occur on a more infrequent schedule, such as quarterly or annually.
Annual membership fees, homeowners’ association fees, and credit card fees may come up only once a year, and that can make them easy to forget. Failing to account for these fees can throw your budget off once they come due and you may have to scramble to find the cash to pay them.
One month’s blown budget could potentially derail a budget completely. You can try to account for these expenses by saving a little each month to help cover them.
Getting lost in the weeds
While it’s important to take a thorough accounting of your expenses when making a budget, it is possible to go overboard with so many line items that can make your head spin.
A budget with too many line items can be tedious to update and track. It can be more productive to have broad line items that encompass a wider array of expenses, so if you spend a bit too much on one small item, the effect is more limited.
Your social circle
The people you surround yourself with, including your friends, family, and partner, can have a huge impact on your spending. If these people tend to be big spenders, you might be tempted to spend when you’re around them. It would be a shame if one big night on the town threw off a whole month’s worth of budgeting plans.
If you’re saving for a specific goal, like paying down student loans, you might let your friends know that you’re trying to stick to a budget, so maybe they won’t tempt you with expensive sushi dinners or weekends in Tulum. In their excitement to help you achieve your goal, they may be willing to trade nights at the bar for cheaper activities like game nights in.
Making purchases large and small can be dangerously easy, especially with one-click purchase options online. Remember that these types of impulse buys can add up quickly, even if they seem like tiny purchases at the time.
Your budget may account for some discretionary spending. But make sure you stick to the budget you set aside for this type of spending, and don’t let a moment’s temptations put you over.
Learning From Failure—More Tips and Strategies for Staying on Budget
Other people’s missteps—and even our own—can provide a great learning experience, teaching us not only what to avoid doing, but strategies we could actively seek out and perform. Here’s a look at some possible budget do’s that may be helpful if you decide they are right for you.
Keeping it Simple
Streamlining your budget so that it’s as simple as possible can be helpful because it can reduce the amount of time it takes you to update and keep track of your finances. Your odds of success might increase as you decrease the number of tasks you have to stick to.
To keep your budget as simple as possible, consider the rule of thumb known as the 50/30/20 rule, which limits the number of categories you keep track of to three. When using this strategy, you would allocate 50% of your spending to essential expenses, including housing costs, debt payments, utilities, and food.
The next 30% of your income goes toward discretionary expenses like dining out, entertainment, or your hobbies. The final 20% would be put toward your savings.
This strategy can work when you’re paying others and when you’re paying yourself. If your goal is to save or invest, you can have money automatically sent from your checking account to your savings account on a regular basis. Or you can have money sent to your brokerage or retirement accounts where it can, in turn, be automatically invested.
Consider using budgeting apps to help you keep track of your spending and savings. Your time is likely better spent planning and monitoring your budget than it is manually entering your purchases and transactions.
Apps can help keep track of this for you, monitoring bank accounts, credit card spending, and even keeping track of how you spend cash. Some apps allow you to split your spending into your own categories and can send you alerts when you start to max out your budget to help keep you from going over.
Being mindful of your credit card
If you have credit card debt, you might want to stop using your cards immediately. Credit cards typically come with relatively high interest rates, which could cost you a lot of money if you carry a balance month to month. If you continue to spend money on your cards, you are continually adding to your balance.
So even if part of your budget is allocated toward paying down your credit card debt, you might still be backsliding. In the end, the money that you have set aside to pay down your debt may actually be only covering your current expenses.
Building in some wiggle room
We’ve already discussed how unrealistic expectations can be one of the reasons a budget might fail. And one of the most unrealistic expectations is perfection. Instead of trying to hit exact dollar amounts each month, consider treating your budget more like an estimate.
You likely don’t want to go way over your estimate, but you don’t necessarily want to box yourself into a situation where you must account for every dollar.
Having an emergency fund
Sometimes, life throws you curveballs, like unexpected medical bills or a failing transmission in the car you drive to work. These unpredictable expenses are not easy to plan for, so it might be smart to have a pool of cash on hand that you can dip into should they occur.
You might consider having three to six months worth of savings set aside in an emergency fund. You could even set the money aside in its own account so you won’t be tempted to borrow from it. When an emergency crops up that affects, for example, your health or ability to work, you can dip into this reserve.
Making it a habit
Telling someone to stick to a budget by, uh, sticking to it may feel like a big “duh.” But the longer you spend working with your budget, the process will hopefully become more ingrained.
So, while the first month or two may feel difficult, try to push past that initial start-up period. As your habit builds, so too should your momentum, and budgeting may start to feel much easier.
Ready to build a budget for the first time, or find ways to make an existing budget work better for you? You can track your spending with a SoFi Money® cash management account to make sure you are on track with your budget.
Plus, you can earn 0.20% APY on all your cash and there are no account fees (subject to change).
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.