If you've done the work to create a budget, yet you consistently spend beyond it, then the first step is to find out why you're breaking your budget; then you can take steps to fix those problems. Typically, budget busters happen because of unplanned expenses, an unrealistic beginning budget or a lack of motivation and commitment to stick to the budget. While none of these are easy to overcome, here are a few strategies that may help. (For other ways to help you with a budget, check out Top 5 Budgeting Questions Answered.)
These unplanned events can imply that the budget was never complete . For example, did you plan for the potential of a job loss, a health emergency or an auto accident? Probably not. While these events and many others are possible, most budgets don't account for them at all. Other events, such as weddings, funerals, graduations, and birthdays, are more predictable, but are also often overlooked in the budget. By planning ahead before events occur, the funds can be there, emergency savings can be accumulated, and the budget impact can be eliminated or diminished. (For more, read Six Months To A Better Budget.)
When planning a budget, include these sporadic and unpredictable events because they happen all of the time. Include things that aren't typical in, what some people call, a "rainy day fund". You won't need to save for every potential consequence, but having a list and costs will help you see where your risks are and where you should work to mitigate them.
When you create your budget, don't stop with your typical spending. Try to be specific about what could happen. The best place to start is with your past. Use what you have done before as a benchmark for what may happen again.
Unrealistic Beginning Budget
If your budget is complete, you can still have problems if the amounts were unrealistic. To try to put as much reality into your budget as possible, be specific as you look at your past spending. Start with your credit card statements, line by line. Include small things that add up like hair care, coffee/water/soda, books, music, movies, etc. Also track your cash spending. A $200 withdrawal isn't a budget item, but what you purchased with it is an item. Compare that to your budget projections to see where you are inaccurate.
It's far more difficult to make decisions about a broad category than it is a narrow one. Itemize and avoid lumping everything into one category, like food or entertainment. You won't remember how much you spent already on entertainment this month, but you can remember that you already went to the two movies that were budgeted. (Fore more tips, read The Beauty Of Budgeting.)
Lack of Motivation and Commitment
If you have a realistic budget that includes rare events, but you still go beyond it regularly, then it probably can't be solved by a budget modification. In some severe cases this could mean a behavior disorder, but it's more likely that you are simply in the habit of spending whatever you want and not in the habit of sticking to the budget that you developed. Instead of focusing on not doing the wrong thing, find motivation and commitment to your budget by replacing old habits with more productive behavior. Here are a couple of things that might help:
- Start substituting activities that don't impact your budget. For example, instead of going to lunch with a friend, go for a walk with them. Instead of taking the kids to a movie, take them to a park or a friend's house. Instead of going to a fancy dinner, learn to cook one at home.
- Many people spend money in their free time, so create less free time. For example, volunteering or taking a second job. Both can be rewarding, but not costly, and potentially profitable.
- If you think you lose track of your spending, put a copy of your budget in your wallet or purse so that you look at it every time you spend money.
- If you lose enthusiasm about your budget and start not to care about sticking to it, place the list of reasons why you want to stick to your budget in a place that will have impact, like taped to your wallet or credit card.
In conclusion, if you took the time to create a budget but don't live within it, then there's a reason. It might be that events occurred that weren't included or, if they were, the costs weren't realistic. More commonly, you never really committed to forming the habit of sticking to it. If you solve those issues, you will likely stop busting your budget. (For further reading on maintaining financial stability, read Build Yourself An Emergency Fund and Are You Living Too Close To The Edge?)