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It’s great to take the initiative to finally write out a budget. You’re taking one of the most important steps toward finally getting ahead. But your first crack at estimating your expenses may be missing the mark. In fact, it’s almost certain that your initial budget will need some tweaking. Here, we’ll lay out the most common issues you’ll face, and some easy ways to fix your budget.

How to Fix Your Budget – 7 Reasons Why Yours Isn’t Working

1. You’re Underestimating What You Actually Spend.

It’s possible you’re leaving out a few things, for instance:

Food:

• Probably the most underestimated, since we buy food in so many ways. The food category should include groceries, take-out, restaurants, lunches – basically any food purchased.
• If you’re budgeting $400 per month on food, then one trip for take-out pizza and drinks can blow 25% of your weekly budget. The first few months of using your new budget are when you need to be ultra-aware of everything spent on food in whatever setting.
• It’s a good idea to stockpile some foods like pasta or other foods that have a long shelf life. So when you spend a night out or an office lunch, you can postpone your grocery trip for a few days.

Transportation:

• If you’re listing only your car payment and gas, you’re missing tolls and repairs.

Other Expenses:

• Other expenses that are easy to overlook are subscriptions, membership fees for clubs or kid’s sports, utility bills paid quarterly, haircuts or nail appointments, contributions at work or school, or anything that’s auto-drafted from your account.

Store purchases:

• Trips to the store can also cause you to fix your budget if you’re not careful. Suppose you go to Target and spend $60-$70 for a variety of household items, food or clothing. Just take a few minutes and write down, clothes $26, food $18, household $25.  Then enter those as expenses in your budget.

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2. Is Everyone on the Same Page?

One of the main reasons for friction in a marriage or relationship is when people aren’t in agreement on your spending strategy. Even if you have different spending habits, try to agree on a mutual longer term plan, say for the next 5 years. If you can agree on a common longer term goal it’ll be easier to see eye to eye on the day to day choices that’ll get you there.

At the very least, get a mutual understanding of:

• The amount of money coming in each month.
• The amount of your monthly fixed expenses.
• The amount you have left to spend on things like clothes, entertainment or ATM withdrawals.

Your budget will evolve over time as you get a raise or adjust certain expenses. But to start getting control of your expenses, just getting your current situation on paper and agreeing on that, is a start.

It may help too, to have a certain dollar amount where you check with each other before spending.

Communication is the key in fixing your budget, so setup a regular weekly budget meeting. Nothing formal, just a 15 minute check in, about how you did this week and what might be coming up next week. It’s a great way to celebrate together when you pay off a bill, or reduce an expense. And when you do, you’ll be able to implement longer term strategies, like saving for a particular goal or investments.

3. You’re in the Habit of Over-Spending

Taking the initiative to create a budget is great, but if you’re regularly exceeding it then you can say you have a ‘budget’ until you’re blue in the face. A budget implies that you’ve written down what’s coming in, what your fixed expenses are, and what’s left to spend. If you’re regularly exceeding it then it’s got to be one of two reasons:

• You’ve under-estimated some fixed expenses. So there, you’d need to adjust the amount in your budget upward, or if that’s not possible, shop for a better rate, adjust another area to accommodate it, or even evaluate if it’s a necessary expense.
• If you’re consistently overspending in your discretionary categories, you may need to evaluate your lifestyle. Evaluate your needs vs. wants. How do you and your family spend time? What activities can you do that cost less?

That new sofa or big-screen TV will still be there when you save up the cash for it. Your neighbor may have a new 60-inch TV, but how do you know they’re not in debt up to their eyeballs? If you stick with your budget, eliminate debt, and start an emergency fund, you will eventually be able to pay cash for those purchases.

4. Maybe Your Budget Doesn’t Fit Your Lifestyle

Your budget may work great for a while, but we all have changes in our lifestyle. Maybe you have a child and become a one-income family. Or you start a new job with a longer commute or more expenses. So, your budget needs to adjust sometimes.

Since we can’t just raise it without bringing in more income, sometimes you’ll need to adjust the categories. For example, your commuting expenses go up, so you adjust by drilling down on your food budget and start planning meals, or bringing your own lunch. Or maybe you look into a side hustle you can do from home to bring in a few hundred per month.

The point is, lifestyle changes affect our budget in ways that might seem small initially, but add up during the year. Then we’re left wondering why our budget worked for months, and now we’re struggling. Just being aware of changes, and making adjustments will ensure that your budget still fits your life.

5. Fix Your Budget by Simplifying it

If updating your budget is like taking a math test, you probably won’t stick with it. Sure, it may take awhile to initially write it, and get every category down. But you want to make it easy to maintain.

Making categories as granular as ‘scotch tape’ or ‘the ice cream man’ is a sure way to create a four-page mess that you’ll never want to maintain. Creating ‘office supplies’ and ‘food’ is a much easier way to categorize them.

If you find that you’re consistently exceeding one category, then you can drill down further to see where you’re spending too much.

You may even want to start your budget on paper, and once you’re used to it, then start using one of the free apps like Personal Capital. The advantage of that, is that it incorporates all your money – your checking and saving, debt, and any investments. So the minute you log in, you’ll see everything on one page. Here’s my review, for whenever you’re ready to check it out.

6. Don’t Forget Your Budget’s Partner – Your Emergency Fund

One reason your budget will almost definitely fail, is if you don’t make it predictable. Your budget should cover the expenses you know you’ll have to pay each month. Your rent or mortgage, utilities, food etc.

The idea of a budget is to gain control of your money and move past paycheck to paycheck life. So it may work for awhile, but we all know it’s only a matter of time before an ’emergency’ happens. Something that’s not in our budget that needs to be paid right away.

Taking money from another category doesn’t work because now you’re late with that payment. And charging it on a credit card is even worse. Or as Dave Ramsey likes to say, “credit card debt is an emergency”.

The only way to make your budget predictable, is to have a separate emergency fund. As tough as it might be initially, it’s critical to build an emergency fund. Concert tickets wouldn’t be considered an emergency, but that $500 car repair or $600 medical expense needs to be paid now.

The one method I’ve found that’s worked very well so far, is by using Digit. It’s an app that does 3 things for me:

• Automates my deposits, and makes sure they actually happen.
• Takes small enough amounts, that I can actually afford.
• Sends a text to me once every single day with the balance of my accounts.

It’s really simple. Once you sign up, it’ll open an FDIC insured emergency fund for you. Then, every couple days, it moves a few dollars from your checking, to your emergency fund. It takes the thinking out of it, and it grows unbelievably fast. Here’s my full review that describes all the details if you’d like to see how it works.

7. Don’t Forget to Build in a Few Rewards

Let’s face it, we create a budget because there’s just not enough money to go towards everything we want. So, using a budget is a great first step in getting control of our money.

But those first few months can be tough. We’re trying to be ultra careful to make sure we get it right and don’t over-spend.

If you can, try to build in a category for entertainment. Even if initially, it’s only enough for a movie night or ice cream. You can always adjust it as you gain better control of your income. But having a guilt-free night out once in a while, even if it’s a small splurge, makes the rest of the week easier to handle.

Final Points

Remember, don’t think of a budget as something that’s restricting your life. We have a finite amount of money coming in each month. So allocating it in a way that’s best for us, is how we escape paycheck to paycheck mode and actually do what we want in life.

Think of your budget as a tool that’s going to help you move toward your goals.

Most likely, there will be hiccups the first few months. You’ll forget a few expenses, or under-estimate a couple. So the first few months will be an exercise in tracking your expenses. Just trying to get every bit of your spending on paper.

Once you do, then you’ll start to see where the leaks are. You’ll be able to adjust, and suddenly you’ll find the money to direct to an emergency fund. (Yay!) And debt reduction. And then saving!

That’s when your options in life begin to open up. You’ll pay for emergencies without skipping a beat, and pay cash for the things you need.

By being intentional with your spending, you’re buying something much more valuable than take-out food, the latest sneakers, or a sectional sofa. You’re buying your freedom, one week at a time.

Have you found a way to budget that works for you? Let me know!