Creating a budget and then following it can be challenging for all of us. When setting a budget, it's important to take a look at your overall cash flow. Be realistic about what you will realistically be able to do. You can download a Cash Flow Analysis and Budget Worksheet from GET READY! (here). The following is a guest blog post from Susan Ranford that is an excellent deep dive into how you can clean up your budget. A big thank you to Susan for this post.
You've done the hard part: you finally forced yourself to sit down, total up all your income and expenses, and assembled a monthly budget. You've even managed to stick to it and not make any crazy impulse purchases, yet somehow, you still wound up spending more than your budget says you should have.
What went wrong? More importantly, how can you fix this and finally get your budget on track? It’s frustrating to feel like you’re doing everything right and still not get the results you’re looking for, but even the most diligent among us are prone to mistakes that are simple enough to make, but fortunately, are also simple to fix if you know where to look.
You’re only tracking your bills, not your actual monthly spending.
One of the biggest budgeting mistakes people make is being so focused on the significant expenses like utilities, insurance, rent or mortgage, and groceries that they forget to include anything else they spend money on. This is generally due to a mindset where, for example, you tell yourself that your Friday night six-pack of Sam Adams isn't going to put you in the poor house.
That may be true in a vacuum, but if you get that every Friday night, it’ll add up. So will the occasional trip to Starbucks, and the 2-3 days a week you buy lunch at work because you didn’t feel like cooking. Your budget needs to include everything you spend money on, and it may be worth hanging on to all your receipts to total it up and realize how much you actually are spending on non-budgeted stuff.
Not monitoring your budget to make sure it is working.
Putting together a budget is only half the battle because for as important as it is to predict what you're going to spend in a given month, that’s all it is: a prediction. You may make mistakes, or not account for factors that’ll change what you spend on those budget line items.
Let’s say your gas company raises its rates, are you keeping track of that and updating your budget accordingly, or are you just paying the bill without checking to see if it matches your budget plan? Did you account for the fact that your gas and electric bills will probably go up in the summer and winter? Make sure you keep an eye on this stuff and, if necessary, you might need to…
Be willing to revise your budget as needed.
There’s nothing wrong with making budgeting mistakes, and if you’re new to this, you should probably expect to make a few. Again, a budget is just a projection, and even if it’s somehow accurate on your first try, there’s a good chance things will change, and your budget will have to change with them.
By continually revising your budget, your projections will come closer and closer over time to your actual spending. By doing this, you'll also gradually figure out where else you can make cutbacks that you might not have initially thought of. Don't get mad over it, just consider it part of the process.
You may not be using realistic numbers in your budget.
If you're in the course of doing your budget and realize that things are starting to get tight, it's accessible to under budget certain things and tell yourself you can get by if you just don't go nuts. This is how people who budget $75 a week on groceries end up spending $95: they underestimate their basic need to spend money on certain things.
If you find that real numbers put you over budget, you might look for other ways to cut back. Can you lower your electric bill by not leaving everything in your house on at all times? (Big hint: LED bulbs cost more up front, but can save you a fortune.) Can you get rid of that landline you got because you’ve always had one, but you never use it?
Using your credit cards for too much of your budgeted spending.
There’s nothing wrong in principle with paying for things with your credit card. In fact, we live in an online world now where most people do just that. Even if you’re not going over budget, consider that you will be billed interest on whatever you spend, so by charging these things, you’re going to be paying more on them unless you pay them off before your monthly statement closes. If possible, it’s always better to pay cash.
As you can see, budgeting is not an exact science or an easy one. However, following the tips outlined above can help you maintain a realistic budget, and avoid having to go from budget management to debt management.
Susan Ranford is an expert on career coaching, business advice, and workplace rights. She has written for New York Jobs, IAmWire, and ZipJob. In her blogging and writing, she seeks to shed light on issues related to employment, business, and finance to help others understand different industries and find the right job fit for them.