The word “budget” has been known to make people cringe, cry and bury their heads in the sand, but budgeting challenges don’t have to keep you from getting the job done. Budgets are just a set of guidelines to help you manage your money. (Budgeting Basics will help you get started.) Once you set up your system, budgeting isn't even that much work. If yours isn’t working for you, then scrap it and start again. But don't be stopped before you start by challenges that you can easily overcome.

Budgeting Challenges

1. The All-or-Nothing Mentality

Many people are turned off by budgeting because most advice about creating one requires tracking every penny spent for three months. That is a lot of saving receipts and tracking, especially if you aren’t using an automatic system. The point of a budget is to get a picture of your expenses and plan for your financial goals – in other words, it is a tool for you and you alone – and if tracking every penny is a roadblock to get you started, cut yourself some slack. Perfect is definitely the enemy of good.

Having a general idea of your income and major expenses is a good first step toward creating a budget. Common spending categories include:

  • Rent
  • Utilities
  • Phone/Internet
  • Transportation
  • Insurance
  • Groceries
  • Car Payments
  • Childcare
  • Loans or Debts
  • Clothing
  • Entertainment
  • Dining Out
  • Travel
  • Charity
  • Savings

If you tally up roughly what you spend for each of these categories (or what you would like to spend) – and it is less than your income – then it is fine to track your large expense categories and leave out the occasional lunch or impulse purchase. If you find that you’re overspending, you need to reassess and set a stricter budget.

2. Labor-Intensive Tracking

As mentioned above, common budgeting advice requires you to track all of your receipts and spending for multiple months. You can do this on paper or on a spreadsheet, but there are easier ways. A variety of apps and computer programs exist that will track your spending, categorize it, help you create a budget and note progress toward your financial goals.

Click on the 5 Best Personal Finance Apps for a list of first-rate free tools to try out. In different ways, these apps monitor your bank accounts, credit card transactions and even investments and retirement planning. Some also allow you to set spending goals.

3. Paying in Cash

It has been proved that people who use cash rather than credit spend less overall. The big hurdle is that spending cash makes sticking to a tight budget very challenging, because to track your spending you have to manually tally up receipts. There are a few ways to stick to a budget while avoiding credit cards.

One method is known as the “envelope” method. You take your spending money out of the bank at the start of the month and divide it into envelopes. When the grocery envelope is empty, that’s it for the month (although you can always borrow from the other envelopes in an emergency). A more wallet-friendly alternative to carrying around multiple envelopes is to paper clip bills together and attach a sticky note that designates what the money is for. Obviously, some monthly bills will be paid directly from your bank account – or by check, if you still do that – for example, rent, car payments, credit cards and utilities.

A less complicated version of this method requires designating a specific cash amount for variable expenses and miscellaneous purchases and putting that in a single place. Instead of tracking every cup of coffee or dinner out, use your cash on hand to guide your general spending. The fund can be designed for whatever time period works best for you: weekly, biweekly or monthly. Just coordinate it with the big monthly bills. This second approach could also work with a debit card, if you carefully track what you spend.

The Bottom Line

Budgeting can seem scary, labor intensive and challenging, especially for those who use cash. The most important thing to remember is that it is a tool for you, and if you go awry one month, you can just try again the next. And don’t be afraid to change your budget if it isn’t working. Use the above tips and you should be well on your way to finding a financial plan that fits your lifestyle. (For more, see The Beauty of Budgeting.)

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