A Matter of Cents

Why Budgets Fail

By Guest Blogger Sandra Parsons

Have you ever attempted to make a monthly budget, only to give up after a week or two? Why’d you give up? If you’re like most of us, I bet it was for one of two reasons:

You ended up spending more than you planned
You lost track of your spending

Let’s look at these a little more closely:

Overspending

When you make a budget, you define spending categories and estimate how much you’ll spend on each in the coming month. But guess what? Unless it’s a fixed expense (like your internet bill), you’re probably going to overspend sometimes. Why? Because life happens! You’re probably basing your projections on your spending from last month, but that was then and this is now.

How to deal with overspending

Overspending is a natural part of budgeting. It happens. But how should you deal with it? Obviously, if you overspend in every category, you have a problem. You will run out of money, or go into debt. That’s a given. If this is you, then you need to cut some expenses. You simply cannot afford your current lifestyle.

But we don’t usually overspend in every category. So if you overspend on groceries, you can take the excess amount from another budget category. That way, you stay balanced.

Example

Let’s say you’ve budgeted $250 for groceries and $50 for eating out. If you have an expensive trip to the grocery store and realize you’ve spent $270 on groceries, you can take that $20 from your eating out budget. (Or wherever else you can spare it). The goal is to adjust as you go so that income minus expenses always equals zero. This is the basis of a zero-sum budget. 

You can do this manually, or use an app. You Need a Budget (YNAB) is a paid app that does an excellent job of keeping you on track. Once you overspend in a category, it notifies you and asks you to select a category to deduct the excess from. If you’re interested in using an app to help you manage your budget, I recommend trying YNAB’s free 34-day trial.

Losing track of your spending

If you’re tracking your spending manually, it can be easy to miss a day and fall behind. When this happens a couple of times, you might be tempted to just give up on it and start again next month. I understand your frustration, but you’ll never get on top of your finances if you don’t stick to a budget.

Dealing with it

The easiest solution to this barrier to budgeting is to use an app to track your spending. Apps like YNAB, Mint, and Personal Capital connect directly to your bank and credit card provider to import your transactions. This is pretty convenient because any transaction that moves through the connected accounts will be captured. If you're not a fan of letting an app connect to your account, YNAB lets you enter transactions manually using the mobile app. Another option is the keep a spreadsheet on your phone so you can track your spending on the move. 

Like any habit, it’s going to take awhile to get used to tracking your spending. But stick with it. Try to set aside a ten-minute window each day or every couple of days to review your finances. Once you’ve mastered it, you’ll find your budget goes off the rails a lot less often.
 
Wrapping up

Having and adhering to a budget gives you financial mindfulness, which translates into financial control. In time, financial control will grow into financial freedom. Is that what you’re after? If it is, then mastering budgeting better be on your “To do” list.

If your budget has gone off track this month, don’t despair. Pick yourself up, dust yourself off, and take a few minutes to prepare for the next month and tell yourseld, ‘Let’s try this again.’

Do you struggle to stick to a budget? Can you share any tips for staying on track? 

About the Author

Sandra Parsons is a freelance writer and blogger who specializes in personal finance and positive change. Sandra has a master's degree in psychology and seven years experience in personal banking and believes that small behavioural changes are the key to achieving financial freedom. Check out her blog A Theory of Change and follow her on twitter: @SandraLParsons