When you tell someone that you’re having trouble with your finances, the first thing they often tell you is that you need a budget! While that sounds great in theory, in many cases, even with a great budget, you’ll still find yourself falling short at the end of a paycheck. If your budget isn’t working, you’re not alone! Understanding how a budget really works and taking a few steps to change your financial perspective will help you straighten out your financial woes.
Your Budget is a Set of Guidelines
Obviously, your budget doesn’t necessarily line up with exactly the way you spend your money every step of the way. If you aren’t sticking to your budget, it’s not worth any more than the paper it’s printed on (or the app it’s saved in). There are several common budgeting issues that can make it harder to stick to your budget.
- You didn’t include any “play money.” Regardless of whether you’re saving up for something with a big reward–a big vacation or a coveted purchase, for example–or you’ve simply stretched your finances too thin, some play money is necessary in order for you to stick to your budget more effectively. With no room at all, you’ll be more tempted to “cheat”–and that spells disaster for your budget.
- You forgot to leave room for unexpected expenses. If your finances are too tight, an unexpected cold can spell financial disaster–much less a larger expense like a serious illness or a major car repair.
- You didn’t know what your expenses actually looked like. Gas, for example, is a necessity for getting to and from work. You can tell yourself that you’re only going to go through one tank of gas per week all you like, but if you routinely need a tank and a half, that shortfall is going to have to come from somewhere.
Fixing Your Budget Woes
Once you’ve taken a look at the problems with your budget, it’s time to fix it. You need a realistic budget that actually includes a picture of your financial situation, not the financial ideal you’d like to strive for. As you’re rewriting your budget, try some of these tactics.
Keep track of your actual spending for 3 months. I always recommend 3 months because it accounts for any period of time where there maybe unusually high or low spending (think birthday months for example). Write down where every dollar you spend is actually going, from those quick trips to the grocery store to pick up an extra ingredient for dinner or your daily coffee shop trip to the lunches out with your colleagues. A great way to do this is by printing your last 3 months bank statements and categorizing each item line by line. Then total up each category for the monthly total.
While you can certainly cut some of those expenses, it’s very helpful to actually know where your money is going–and seeing it on paper can be the incentive you need to start using the office coffee maker or brown bagging it instead of constantly going out for your food and beverage needs.
Write a budget based on your actual spending. If you need $200 to feed a family of four for two weeks, it’s unrealistic to think that you can get by on $100 for the same period of time. On the other hand, shaving $10 or $20 off of your food budget by skipping the cheese, avoiding dessert, or making inexpensive meals for a period of time is a more realistic way to cut expenses, especially on a short-term budget.
Account for all of your spending. If you spend $20 a week at your favorite coffee shop, that money has to come out of a line in your budget somewhere. Is that your “fun money” for the week? Does it come out of the grocery budget? One of the biggest problems is the temptation to not “count” small expenses. Unfortunately, those expenses have to be paid for somehow–and often, they add up faster than you think.
Creating a solid budget is just the first step of the battle. Once you have one, you have to stick with it. Commit to shifting the way you think about your finances, then make the necessary changes that will allow you budget freedom to see how living debt free can change your life.