4 Reasons You’re Failing at Budgeting

Following a budget is one of the most effective means of tracking spending and saving money. But if you don’t budget correctly, it’s not going to do you much good. Here are a few reasons why you might be failing at budgeting — and how to fix them.

1. You’re guessing at expenses

The purpose of having a budget is to figure what you’re spending, and what you can afford to be spending, in the various expense categories you encounter on a regular basis. This way, you won’t land in a scenario where you’re spending more than you’re earning. Therefore, if you merely guess at your current expenses rather than get an accurate handle on what they are, your budget isn’t going to be of much use to you.

Young couple looking at a document.

IMAGE SOURCE: GETTY IMAGES.

If you’ve been randomly pulling numbers out of a hat to map out your monthly bills instead of consulting actual statements or records, then you’re doing your budget a disservice, so instead, take the time to comb through those documents and see what your spending really looks like. You might think you only spend $300 a month on groceries, but if that figure is closer to $400, it’s going to throw your budget off course. Similarly, don’t assume that your fixed expenses don’t vary. You might pay $120 a month for a cell and data plan under your contract, but if you tend to incur overage charges, you might actually be spending more like $140 some months instead.

2. You’re forgetting one-time expenses

Chances are, most of your bills recur every month, like your rent, car payment, and utilities. But what about those random expenses that pop up here and there, like your annual warehouse club renewal fee or professional license charge? If you fail to account for those one-time expenses, it’ll make for a less accurate budget. Therefore, examine your bank and credit card statements from the past year, identify those bills that pop up once in a while, and factor them into your monthly spending.

For example, if you have a license renewal that costs $300 once a year, you should allocate $25 a month toward it. For months when that fee isn’t due, put that $25 in the bank. You can then withdraw that total once the need arises.

3. You’re giving yourself zero wiggle room for cost increases

We just learned that you should base your budget on the expenses you’re actually facing. But if you don’t give yourself a little leeway for cost increases, you might end up going over your budget and running into scenarios where your earnings can’t cover your expenses.

Imagine you currently have $130 allocated for your cable bill. Well, what happens when your contract runs out and your plan goes up to $145? Similarly, you might be used to paying $160 for a monthly transit pass, but if its cost increases to $180 midyear, you might have to scramble to compensate. Therefore, when you map out your budget, make sure you’re building in a touch of wiggle room for those expenses that have the potential to climb.

4. You’re not creating a savings category

The purpose of your budget is to see where you’re spending money and make sure that at the end of each month, there’s an opportunity to put some cash into savings. Therefore, if savings isn’t a noted category in your budget, you might forget that you’re supposed to be focusing on it.

Ideally, you should aim to set aside 15% of your earnings (or more, of course) for retirement on an ongoing basis. (That assumes you have a fully loaded emergency fund. If you don’t, you should save as much as you can, as quickly as you can, to build that safety net.) Not only that, but your savings should be the first line item on your budget so that they get prioritized. If you need to cut optional expenses like leisure, restaurant meals, and your gym membership to make that happen, so be it.

If you’re going to follow a budget, you might as well do it right. Avoid these mistakes and your budget will serve as your ticket to a financially sound existence.

[“source=fool”]