You’ve spent hours making your budget, it looks great on paper, and you feel proud your money plan is now ready to be set in motion.
You go about your month spending according to your budget. Maybe you fudged a little here and there, but overall everything with the budget seems to have worked well…
Until you sit down to reconcile the budget at the end of the month where you find out something went wrong. Somewhere, somehow you went over the budget.
Frustrated, you start entertaining the idea of just giving up altogether. But…
Don’t give up!
Your household budget is the most important thing you can do to manage personal finances and is the key to financial freedom and future wealth.
It took me almost 2 years and 3 different budget styles to find one that worked for me. It took that long because I was making mistakes no one else talked about. At least, no one I was hanging out with.
So if you keep reading, you’ll find out the 3 things that were causing me to sabotage my budget efforts. See if you are making these mistakes.
Aside from all the obvious reasons you may be sabotaging your budget:
I want to cover the “Not-So-Obvious” reasons.
Things that you may have been doing but don’t even realize it could impact your budget.
When I started doing a budget again in 2014, I had this genius idea that I didn’t need to count the money going into my savings because I wasn’t planning on spending that money anyway.
For some reason, I thought if I didn’t track the money going into my sinking funds, then I wouldn’t be tempted to use that money.
Turns out, it was a dumb idea. And no, I was totally tempted to use that money on other things.
I like to think of money similar to water. To make the best use of water, you need to direct every bit of it to where you need it to go. Same with money…[clickToTweet tweet=”‘If you don’t tell your money where to go, you’ll be wondering where it went.’ ~ Dave Ramsey/John Maxwell ” quote=”‘If you don’t tell your money where to go, you’ll be wondering where it went.’ ~ Dave Ramsey/John Maxwell “]
Leaving parts of your income out of the budget will throw off your calculations. And it makes things harder to keep track of. You’ll have to remember not to count the money every time you budget. And if you’re working with a highly-detailed budget, be ready for total and utter chaos.
Hiding money from your budget doesn’t work because, if you’re like most people, you’ve allowed your current living expenses to be based on the level of your income. In other words, if you never used a budget before, you’ve probably allowed expenses and debt into your life at the level of what your current income can handle. When you leave money out from the budget but still have the same expenses, you almost always end up in the red.
For your budget to work properly, you must be honest and track every bit of income and expense, no matter where it’s coming from, or going to. And if you have a business that’s making money on the side, I suggest you maintain a separate budget from the household budget.
Update (July 24, 2016): Apparently, old habits die hard…very hard. June was a magic month for money because I got a 3rd paycheck. Somehow that old idea I had of not tracking all my money resurfaced and I didn’t make a plan for that extra money. Face, meet palm!
This extra money sat in budget limbo for most of July. In my mind – not on paper – I had a plan for it to go to either an upcoming trip or my debt. I just didn’t make up my mind for it yet. Bad call.
Turns out, July is a busy month as far as extra expenses go. A lot of subscriptions came due, the car needed maintenance, and I decided to overhaul my diet (more on that one later).
I re-learned the valuable lesson that I was trying to teach in this post, “Track ALL your money!” I’m such a hypocrite but I’m coming clean now.
Because I did not plan out where the extra money would go, I ended up spending 43% more on groceries and 50% more on my spending category and the month isn’t even over yet!
Overall, I’ll end up spending almost $800 extra in July because I didn’t plan. So much for extra money toward my debt, or vacay.
SO, the lesson learned (er, re-learned) here is to be sure you track ALL your money. If you don’t, you’ll be stuck wondering where the money went at the end of the month – like I did. 🙁
I’m not talking about money market accounts, certificates of deposits (CD’s), or investment accounts. I mean the simple, checking and savings accounts that people use for everyday savings and payments.
I know a couple that has 12 bank accounts in 3 different banks. One for the kids, one for the spouse, one for plain savings, one for special savings, a checking for gas and food, a checking for online shopping. Their list goes on…and on.
I’m one of those people who thought maintaining multiple accounts was smart and organized. It seemed innocent enough to have 10 different accounts in 5 separate banks (not including the one I use for business).
Turns out, I was wrong…again.
Having multiple bank accounts may be sabotaging your budget because more accounts mean more tracking. More tracking leads to confusion and errors.
If you’re using a spreadsheet to track finances for numerous accounts, chances are you’re going to miss something. And if you use an online tool like Mint.com, it only adds to the confusion when you look at the transactions list.
Mint doesn’t know the differences between your transactions, so if you often transfer money from one account to another, you’ll see duplicate transactions. You end up having to spend the extra time sorting things out, which can be exhausting.
And it’s like trying to herd cats!
If you’re going to track ALL your money, make it easy on yourself. Don’t try to wrangle multiple accounts every month. For simplicity, all you really need is one checking, and perhaps two savings accounts.
I had a total of 10 accounts just over a year ago. I’ve since pared down to 4 savings (overall emergency fund, car fund, pet fund, and vacation fund), and 2 checking accounts (one for my business and one for personal expenses). I use 3 banks (one for high-interest savings, one for business, and one for everyday expenses). To some, that may still seem like a lot but I find it easier to keep money set aside specifically for my fur buddy and vehicle because I’m always needing money from them.
Make it easier to run a successful budget by minimizing your accounts. The less you have to track, the easier it is to watch where your money is going.
You’re still using credit cards and revolving lines of credit.
Most people hang on to their credit cards for various reasons. For emergencies, for the rewards, or to keep up their credit report.
The honest truth is 1. you don’t need a credit score to live, 2. the rewards you get for the amount of debt you need to put yourself in aren’t worth it, and 3. if you didn’t have debt payments, you could quickly save up an emergency fund.
I’m trying to break free my credit cards because they keep me perpetually in debt. As I work through Dave Ramsey’s Baby Step 2, I see how using debt will forever keep my budget in the red because I always spent more than I earned.
People using a credit card are prone to spend 12-18% more money than they would than if they were paying with cash. Pay for your everyday expenses with a credit card and you may be putting your budget in the red without realizing it.
Using a credit card makes tracking money more complicated than it needs to be (hello, one more account to track). And when you use a credit card, you may be spending money that you didn’t make that month.
If you’re having trouble getting your budget to work and your numbers just don’t come out right at the end of the month, take a step back to see if these things may be messing up your budget.
They certainly did for me, and it took almost 2 years before I figured it out.
The best way to manage your budget is to make it as easy as possible for you to keep track of your income and expenses. And to make sure your expenses never exceed your income.
Using a credit card complicates things and opens the door for you to spend more than you make. Having to track too many bank accounts can be frustrating – like herding cats. And you just open the doors for errors if you’re not tracking all of your money.
These are the 3 biggest things I was doing with my money, and it caused my budget to fall apart every month. I thought I was smart and organized, turns out, I was just silly.
DISCLAIMER: None of the links in this article are affiliate links. I am not a certified financial advisor. All the ideas expressed in this article are to be taken as entertainment only. Any and all decisions to follow the steps in this article will be done so at your own risk. It is recommended that you do your own personal research and consult with a certified financial advisor first (or read the Total Money Makeover by Dave Ramsey). Despite this disclaimer, please know that I’m self-educated in, and have experience with, personal money management. I have thus far paid down approximately $9000 of debt (2015-2016), and the ideas mentioned in this article are experiences from my personal life which I feel could help other people – like you – looking to change their money situation.
Christine is a professional freelance blogger and personal finance writer. She's also an Army aviation instructor and business management graduate who understands what it takes to run a small business and be able to communicate effectively. In addition to blogging about money, she offers writing services in the areas of business, personal finance, digital marketing and soloprenuership. Get free exclusive content by signing up for her monthly newsletter!