Using a budget to manage your money is the key to paying off your debt, but sometimes your budget might not work. There are many potential reasons for a budget breakdown. The numbers may not match up, or you may simply be spending more than you budgeted for. Here are some of the common reasons budgets don't work, along with ways you can get yours back on track.
You Haven't Given It Enough Time
Budgets usually tackle spending and debt issues with long-term plans, and they rarely have an immediate effect. If you're a few months in, and you haven't noticed an impact, you might simply need to be patient. What you can do in the first few months is to reassess your budget and make adjustments as you learn more about your actual income and expenses.
Your Expenses Are Higher Than Your Income
If your net income (income minus expenses) is a negative number, then you're spending more money than you make. The problem isn't the budget, it's your spending. Review each spending category, and figure out which ones you can cut back on.
This can be a difficult exercise, especially if you're overspending in areas that make you feel comfortable. However, learning to live within your means will put you in a much better financial position.
You Don't Have Enough Money Budgeted for Some Categories
It's easy to underestimate how much you'll spend on some categories, especially costs that can vary greatly from one month to the next, like food and gas. If you see that you're consistently overspending your budget in those categories, you might need to increase the budget for those areas. Remember that it could mean cutting back your spending in other areas to keep from going over your budget.
You Aren't Sticking to It
You have to actually use your budget if you want it to work. Don't just write the numbers on a piece of paper—stick it in a drawer, and forget about it. Refer to your budget frequently throughout the month. Track your spending, and compare it to what you've budgeted to see how you're doing.
You Didn't Leave Any Room for Fun
Living on a budget doesn't mean that you can't enjoy your usual hobbies and entertainment. In fact, you may find that you have an easier time sticking to a budget if you decide ahead of time how much you're going to spend on recreation. Cutting out all the fun will make you resent budgeting. That's not the goal, and it increases the chances of you scrapping the budget altogether. Keep it reasonable. You can still have fun without blowing your budget.
You're Focused More on the Tool Than the Plan
A successful budget doesn't require the latest spreadsheet or financial software. It might be fun to try out new apps, but you could jot down your budget on a napkin and make it just as effective as any electronic budgeting tool. If you're getting too distracted by the software, go analog for a few weeks and then catch up in the app at the end of the month. On the other hand, if your budgeting tool is making you hate budgeting, look for alternative budgeting tactics. Print a few copies of this printable budget worksheet to get you started.
You Aren't Adjusting It
A budget isn't a legally binding contract that can never be changed. On the contrary, you should adjust your budget from time to time, especially in the beginning as you learn more about your spending habits and real income. If your income or expenses change, make sure your budget reflects the changes. Major life changes like a marriage, divorce, or the birth of a child will require a similarly substantial budget adjustment.
You Aren't Practicing Self-Discipline
Sticking to your budget will require you to say "No" to some unplanned purchases. If you've got your eye on a big purchase, forgo it at least as long as it takes to check your budget to see whether you can afford it. Practice self-discipline, and delay some purchases, especially if you haven't explicitly budgeted for them.
A diet won't help you lose weight if you cheat on it, and the same goes for a budget. It's common for novice budgeters to overstate their income or understate their expenses. The problem is that no one is going to punish you for cheating on your budget, but that doesn't mean there aren't consequences. Instead, the consequences will silently pile up until they get to a point where you can't ignore them, forcing you to dip into savings to pay for regular bills or deal with debt collectors.
You Forgot to Include Some Expenses
If you don't include every expense in your budget, it can seem broken when you compare your spending to your income at the end of the month. Use canceled checks, online banking services, and ATM withdrawal receipts to capture all of your expenses.
You Didn't Budget for Annual Expenses
Not all of your bills have monthly due dates. Some bills, like insurance premiums or property taxes, are only due once or twice a year. If you don't include these expenses in your budget, they'll take you by surprise. Budget for annual and semi-annual expenses by dividing the total expense by twelve or six. If you put the money away during the year, those hefty expenses won't blow your budget.
You Don't Have an Emergency Fund
An emergency fund keeps you prepared for unexpected expenses. If you don't have an emergency fund right now, start putting a few hundred dollars away every month until you build solid savings. One standard target is to aim to set aside three to six months' worth of living expenses.
If you're in a dual-earner household, consider setting aside at least three months of living expenses. If you the sole earner in the household, or if there is a significant difference in the level of income in a dual-earner household, consider setting aside at least six months' worth of living expenses