4 reasons why your budget may not be working

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If you’ve ever tried to improve your finances, the first thing you probably noticed was your budget. Love it or hate it, there are certain benefits to knowing where your money is going on a monthly basis. Budgeting can help you figure out if there are areas where you’re spending on things you’re not really interested in. And, it can even help you avoid overdrafts if you always stay up to date on how much money is leaving your checking account.

But it’s also common to feel discouraged or even annoyed with your budget when it doesn’t seem like it’s necessarily helping you save or cut spending. Instead of immediately throwing in the towel, consider these four reasons why your budget wasn’t as effective as you thought.

1. Your budget seems too restrictive

Financial experts usually compare the feeling of an unsuccessful budget to that of dieting – at first you feel determined (and even excited) to stick to your plan, but you quickly start to feel like your diet is letting you down. without many of your favorite things. Over time, it can feel unsatisfying and even daunting until you finally decide to quit.

This can also be true when you’re on a budget that’s too restrictive. Maybe you’re trying to force yourself to stop spending money on things you love, like coffee, candles, or dinners with friends; it can become very difficult to stick to a spending plan like this when you have to say no to dinner invitations with friends or give up something that you consider a highlight of your morning routine.

Therefore, a budget that restricts you from spending on things you love is unsustainable in the long run and unlikely to be adhered to. Try prioritizing one or two of your favorite things to include in your budget so you feel like you have a more balanced spending plan while creating savings for yourself.

2. Your income varies from month to month

With a traditional budget, you’ll usually have to set limits on how much you can spend on all of your expenses. This can be difficult for the average person whose expenses fluctuate on a monthly basis, depending on lifestyle factors such as doctor’s appointments, travel, birthday presents, etc. But it becomes even more difficult to master when your monthly income is not fixed.

If you own a small business or are a freelancer, your income will vary from month to month depending on your sales or the number of customers who book your service. You may have a higher than usual income in some months and a lower than normal income in other months.

Similarly, if you are an hourly employee, your total income each month may depend on whether you may have been paid overtime for extra shifts or whether you took days off for work. month. Larger gaps in your monthly income can make it even more difficult to set spending limits for all of your expenses.

If your income varies but you want to set a budget, start by writing down and adding up all your minimum expenses. These are your necessary expenses that you owe each month, such as rent, food, and transportation. The sum of all these fees represents the minimum amount of money you will need to earn and gives you a good idea of ​​what you are aiming for in terms of income each month.

An emergency fund is especially important for people with irregular incomes, as it provides you with a cash cushion in case your income falls short for a month.

3. You create a budget based on an “ideal” spending plan instead of what’s actually realistic

When I think about how I would ideally like to spend money, I would rather spend very little on eating out each month. However, since I like to hang out with my friends and everyone in my friend group has very busy schedules and we don’t live next to each other, booking dinner or brunch is often the easiest way for us to spend time with everyone. . Take into account that we are dining in a city where the cost of living is very high (because it is the most accessible to everyone) and it can be very easy for me to spend more than I wanted.

Creating a budget with these “ideal” expectations in mind will only discourage you. If I want to spend only $50 at restaurants per month, but have noticed that my actions show that I consistently spend close to $80 at restaurants, that’s a signal that I should adjust my budget accordingly if spending time with my best friends is something that I really enjoy. Adding $25-$35 to my budget for eating out would be more realistic based on my previous track record to spend a lot more on meals. In exchange, I could reduce my expenses on interior decoration to compensate for this.

This can apply to many different expenses. Maybe you imagine spending no more than $10 a week on coffee, but ordering a coffee and enjoying it at your favorite cafe is unavoidable. In this scenario, you should instead adjust your budget to account for these daily coffees, as this is a more realistic spending decision for you and best allocated up front.

4. You’re using a budgeting method that’s not right for you

Like most aspects of personal finance, budgeting is not unique. The budgeting method that works best for your colleague may not work for you. This will depend on your personal situation and your personal comfort level with the method. Sometimes it may even depend on how much time you spend each month tracking your expenses. You may keep trying to lock yourself into a budgeting method that just doesn’t fit your lifestyle and how you stay financially organized. It can make you feel like you’re ready to throw up your arms and say, “forget it.”

The good news is that there are a variety of budgeting methods to accommodate various financial situations.

The 50/30/20 budget, which is one of the most commonly used budgeting methods, provides numerical guidelines on how you should strive to allocate your money: 50% of your salary is spent on essentials like food and rent, 30% goes towards discretionary spending like dining out with friends and shopping, and the remaining 20% ​​goes toward savings goals like buying a home or investing. The 50/30/20 method of budgeting can be helpful for beginners who need boundaries, but also want to create a balance between needs, wants, and future goals. If you don’t max out each category, such as spending less than 30% of your salary on discretionary spending, that also leaves room for you to roll over money to the next month.

Another budgeting method, zero-based budgeting, is a slightly stricter approach. This method ensures that you create a spending plan for every dollar in your paycheck so that there is no money left over. With zero-based budgeting, you can maximize your savings and maximize the amount of money you can spend on debt. At the same time, however, this method leaves you with no money to carry over to the next month since every dollar is allocated.

Whichever route you take, make sure your budgeting method works for you. It’s worth playing around with different styles to see what makes the process easier, and sometimes even fun! Remember that budgeting apps can help you get organized. For example, Mint lets you connect your bank accounts, credit cards, investment accounts, and other financial accounts so the app can automatically categorize your transactions. This gives you an easy way to find out where your money is going each month.

You Need a Budget (better known as YNAB) is also a solid choice for those interested in the zero-based budgeting method. The platform’s interface lets you connect your bank account or manually enter your balance information so you can allocate every dollar to an expense.

mint

Information about Mint was independently collected by Select and was not reviewed or provided by Mint prior to publication.

  • Cost

  • Standout Features

    Shows income, expenses, savings goals, credit score, investments, net worth

  • Categorize your expenses

    Yes, but users can modify

  • Links to accounts

    Yes, bank cards and credit cards

  • Availablity

    Available in the App Store (for iOS) and Google Play (for Android)

  • Security functions

    Verisign scanning, multi-factor authentication and Touch ID mobile access

You need a budget (YNAB)

Information about You Need a Budget (YNAB) was independently collected by CNBC and was not reviewed or provided by YNAB prior to publication.

  • Cost

    34-day free trial then $84 per year or $11.99 per month (students who provide proof of enrollment get 12 months free)

  • Standout Features

    Instead of using traditional budgeting buckets, users allocate every dollar they earn to something (known as a “zero-based budgeting system” where no dollars are wasted). Every dollar is assigned a “job”, whether it’s to pay bills, savings, investments, etc.

  • Categorize your expenses

  • Links to accounts

    Yes, bank cards and credit cards

  • Availablity

    Available in the App Store (for iOS) and Google Play (for Android)

  • Security functions

    Encrypted data, accredited data centers, third-party audits and more

At the end of the line

If you feel like you’re just having no luck sticking to a budget, the problem may lie in a handful of different things. A budget that is too restrictive, that does not take into account your irregular cash flow, that is not realistic or that is simply not the right method for you can set you up for failure.

It may take some time, but to find the budgeting method that’s right for you, you’ll need to think about your personal situation and your comfort level with different budgeting tools. It can also mean trial and error, but it can be worth it.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

About Thomas Hereford

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