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4 Reasons Your Budget Isn’t Working

budgets that workSo, the budget doesn’t seem to be happening for you each month? Can’t figure out how to do budgets that work?  Well, take heart. At least you are trying. That’s more than can be said for a good portion of the human race who just make excuses for why they don’t want to attempt one.

If you are having trouble, that’s OK. Budget success doesn’t happen overnight. It took my wife and I six months of making adjustments and having emergency budget meetings before ours began to settle down and become consistently stable from month to month.

Budgets That Work

This I know with complete surety, developing a quality budget changed our life. But it wasn’t without some missteps along the way. In those early days, I found these four things wrecked our budget every month.

1. We left items out of our budget

Each month we would forget some expenditure. The kids back to school fees. A haircut for my wife. The car insurance payment that comes twice a year. These and what seemed like a hundred other things kept creeping up on us “unexpectedly” (we should have known) and wiping out our budget plan for that month.

So in order to do budgets that work you have to be thinking about what is coming down the road. We had to take out our bills and our calendars and plan ahead for when certain items would be due. We inserted notes into our budget spreadsheets so that we wouldn’t forget those same items in coming years. And we forced ourselves to communicate more as a couple so all ideas about what was coming up that month were on the table.

This helped eliminate the surprises – the “gotcha” moments from month to month. But, speaking of spreadsheets…

2. We made our budget too complicated

Those first budget spreadsheets were a disaster. We created an exorbitant amount of categories, too many to efficiently keep track of. When we realized the amount of time it was taking to properly input all our expenditures, we knew something needed to change. So we streamlined some smaller categories into larger ones, which reduced the amount of time we spent figuring out where things went.

Sometimes less is more. Just make sure budget clarity is maintained. Don’t reduce expenses into too few categories. There’s a danger to going in the other extreme as you won’t get a clear picture of where the money is going.

Reducing the complexity helped a bit but not enough because…

3. We didn’t live on our budget

That doesn’t seem to make sense. Why invest the time in making a budget if you are not going to follow it? But I found that is exactly what we did for the first few months. We created one but didn’t follow through with its application in our daily lives. Our attitude was “Haha…we made a budget. Wasn’t that cute. Now let’s just go spend how we want to.”

Living with this attitude will only bring frustration and disillusionment with the entire budget process. You will eventually quit trying unless you develop the discipline to say, “No, it’s not in the budget” then stick to it with your decisions. This requires intense training, especially for free-wheeling spenders like myself.  Because what also happened was…

4. We gave in to “Pretend Murphy”

Murphy’s Law states that anything that can go wrong will go wrong. The day you can’t be late for work the engine doesn’t turn over in your car. These are bound to happen, as emergencies are a part of life. That’s why there is great value in creating adequate savings to pay for emergencies so Murphy doesn’t disrupt the monthly budget or hinder the debt payoff plan.

Our problem wasn’t always Murphy…it was mostly his cousin, Pretend Murphy. He’s a rationalizer. Someone who made us think things were emergencies when they really weren’t. For instance, he popped up often on Friday nights when our friends unexpectedly called and wanted to get a pizza.  He reared his head once in incredible deal we (I) found on a plasma TV. And who could forget those mountain bikes we just “had to get.”

This one area probably tripped us up more than anything else. Creating false emergencies consistently ruined our budget plans.

Budgets are personal finance game-changers. When done properly they can alter your life. The process will take some time to figure out and there might be some holes like these to patch up. So don’t give up if you are experiencing some setbacks. That’s just part of creating an effective budget.

Questions: How have you put together budgets that work? What other reasons have you experienced that resulted in your budget being ineffective? What have you claimed was an emergency but really wasn’t?

Original image by jdr at Flickr Creative Commons

Next Post: Our Nightmare on Rental Street: Evicting a Tenant

Prior Post: Even Jesus Had a Side Hustle?

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Comments

  1. Nice reminder on the aspects of a budget. I find using a “tracking budget” seems to work great for me. I don’t limit myself, instead it’s just keeping track of every penny. In doing so you can easily see your cash flow situation and adjust if necessary.
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  2. Yeah, I definitely need to work on #3 😛 About actually living on it.
    Dave Ramsey always says that you should sign the budget with your partner where you guys uphold each other to be accountable to the budget.

    On top of that, the leaving stuff out part is sooo annoying. But in the end all be all, some plans are meant to be changed as time progresses. But for the most part you need to stick to the plan!

    Awesome post Brian! 🙂

  3. Mike GetRichWithMe says:

    Sounds exactly like the issues I’m having with my new budget. You think you’ve covered everything and then whammy something comes along that wrecks your spending plans.

    • You will get there. It’s just going to take some trial and error. Are these “whammies” emergencies? If so, that’s where the emergency savings fund comes into play.

      • Mike GetRichWithMe says:

        No Brian – they are events that I should have planned ahead for like birthdays and Silver Wedding Anniversaries and other family type events.
        Christmas also looks as though it will blow a hole in my budget unless I plan in advance better

        • We start planning for Christmas in January. A little bit each month goes into our savings and is designated for Christmas gifts. By December, we have the cash built up to buy all of our gifts. Sure makes shopping a whole lot of fun when you can do that.

  4. For me the biggest thing was just getting used to the idea of tracking my spending. Seeing some of those numbers for the first time can be pretty eye-opening and more than a little scary. Like you said it takes time, both to actually capture everything you spend money on and to get accustomed to making adjustments. But I think it’s pretty tough to work towards your goals without actually knowing what you’re doing, so it’s pretty important to stay on top of it.

    • I agree Matt. We need that month to month budget information to help us accomplish our financial goals. It can become really motivating when you see the progress toward the goal begin to steamroll forward.

  5. Kim@Eyesonthedollar says:

    Clothes used to be my emergency that wasn’t. After taking this year off from buying clothes, I think it has cured me. I do want some new things, but it’s just because I’m tired of sewing up the holes in my favorite sweater. I don’t think I’ll buy just because of a sale.

  6. My biggest downfall is the sheer time it takes to input the data. We have multiple income sources, multiple credit cards, multiple everything it seems like. On top of that I do have quite a few categories, as I like the detailed breakdown. As long as I sit down for a couple hours each month, though, I’m able to get it all in our file correctly and it’s so worth it to view the various trends and whatnot.

    I also forget expenditures, but now that we have over a year of data we can see the quarterly and twice-a-year expenses that we otherwise forget. It also makes it easier to prepare because you are reminded that a certain expense is coming up soon.

    I definitely think that everyone should start recording their expenses ASAP if they aren’t already. The sooner you get started the more data you will have over time, and ultimately the more useful it will be.

    • It also takes me several hours each month to do ours but the benefits far outweigh the time costs. And I love the data that compiles over time. It’s valuable to see what you did in a prior years period, especially when you see progress from year-to-year.

    • Have you tried automatic downloading of credit cards and your bank stuff? That may help.

  7. Maggie@SquarePennies says:

    My mom said when they were first married, they kept track of all expenses. They noticed that much of their budget came under the category of “one-time expenses.” They would have done fine without all those one-time expenses! Love your Pretend Murphy! We’re all pretty good at welcoming him when we shouldln’t!

    • We used to say that over and over – “Well, this month would have been fine if it hadn’t been for _______.” Truth is we were unprepared with an emergency fund to handle the issues that filled in the blank each month.

  8. Student Debt Survivor says:

    Oh pretend Murphy lol (I used to know him well, I’ve since kicked him out of my house ;-)) I’ve also been guilty of making a budget and not sticking to it (i.e. buying $100 worth of groceries and telling myself I have “nothing” to eat).

  9. Holly Johnson says:

    I think that a lot of the things you mentioned were the culprit for us back in the days when we were in debt. Our biggest thing, really, was just having too many bills. We paid way too much for everything – entertainment, groceries, debt payments, etc. and it made the budgeting process that much more difficult for us.

  10. MoneySmartGuides says:

    My mistake when I first started budgeting was not including everything in the budget. I thought I was doing well, but really I wasn’t. Once I adjusted my categories and amounts, I started doing much better.

  11. Oh that evil cousin! I have a constant battle with my grocery budget. I’ve come to the conclusion that I must just have a big appetite because I can never seem to reel that sucker in. I’m not sure I ever justified using my emergency fund for something that wasn’t an emergency. I just flat out did it and took ownership over it. 🙂

  12. Shannon Ryan says:

    Oh, Pretend Murphy – love it. We are so good at justifying spending money, aren’t we? It does take discipline and commitment. I think sometimes when people start to get serious about their finances and creating budgets, they start thinking about the things they can never have again, get scared and give up. It’s a bit like dieting – you believe you can never eat cake again, which means all you think about is cake, then you buy a cake and eat yourself sick. We do that with finances too. We fall back on a scarcity mentality, rather than an abundance mentality. I always tell clients that a budget actually gives you freedom – the freedom to choose how to use your money on what matters most.

    • Those are great points Shannon! You should start a blog and write about that. 🙂 The idea that budgets actually bring us freedom instead of bondage didn’t enter my mind when we first started. Now that we’ve been budgeting properly for years it completely makes sense. The cool part is that if budgets are done effectively we can still end up having many of those same things we thought we would have to give up in the first place.

  13. Cat Alford/ Budget Blonde says:

    LOL about pretend murphy!! That’s the perfect way to think about it. I try to factor in unexpected expenses but some really catch me off guard. Great post!

  14. Robb Engen says:

    The irregular expenses are tough. Even after years of tracking our expenses we still manage to miss budgeting for a birthday present or for the kids’ activities.

    I agree with you that too many categories can be difficult to manage in the beginning, but after a few years of customizing my own budget spreadsheet I find that I have a category for EVERYTHING 🙂

    • We’ve manage to remember most of the expenses but still occasionally miss one. Usually these are kid related expenses associated with events at school that we weren’t anticipating or were sprung upon us at the last minute.

  15. Hey, that’s exactly what happened to me and my husband. EXACTLY.

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