In the simplest sense, a budget is a written plan for how much money you plan to spend versus how much you’ll have coming in over a set period of time. Making a budget is a fairly straightforward process but making it work isn’t always as easy. If you’ve written a budget but you still find yourself running out of money before the end of the month, you need to figure out why your plan’s not working.
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Here’s a look at some of the most common things that can cause a budget breakdown:
1. You Don’t Track Your Spending
Keeping track of every penny you spend may seem tedious and time-consuming but seeing exactly where your money’s going can help you pinpoint budget leaks. For example, you may think you’re only spending $400 a month on groceries when you’re actually spending $500 or $600 but you’re not aware because you’re not keeping track. Being able to see what you’re spending your money on makes it easier to look for expenses you can cut back on or eliminate altogether.
All you really need to do to track your spending is write down what you spend each day, including a description of what you purchased. If you’re just starting out, it’s a good idea to track your spending for at least 30 days to get an idea of how much you’re shelling out on a monthly basis. Smartphone apps like Spendee and BUDGT make it easy to keep up with your spending on the go.
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2. You’re Underestimating Your Expenses
While some of your expenses, like your rent or car insurance, may be fixed from month to month, things like your electric bill may fluctuate. If you’re coming up short every month, you may not be setting aside enough room in your budget to cover those expenses.
If you’re not sure how much something is going to cost from one month to the next, you’re better off budgeting more than you need. If you end up spending less than what you budgeted, you can set the extra money aside in a savings account. This allows you to build up a little cushion you can tap into to cover irregular expenses if you end up going over your budget one month.
3. Your Expenses Are Too High
When your expenses are eating up all of your income each month or you find yourself turning to credit cards every now and then to cover the gap, it might be time to reevaluate your bills. Reducing your cell phone plan, switching from premium cable services to basic or canceling that gym membership you rarely use can balance your budget and put more money in your pocket each month.
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If you’ve cut your expenses down to the bone and you’re still struggling to make ends meet, the real problem may be that you don’t have enough income. Looking for a higher-paying job should be a priority but if you’re not in a position to make a major career change, you should be on the lookout for ways to supplement your income. Taking on a part-time job at night, starting a home-based business or picking up a side career as a freelancer are all good ways to bring in the extra cash you need.
4. You’re Not Saving for Emergencies
One of the things that financial experts generally seem to agree on is the need for an emergency fund. The reasoning is that when disaster strikes, you’ll have enough money tucked away to handle it without having to pulling out the plastic or take out a loan. If you’re constantly shuffling money around to cover unexpected expenses because you don’t have any savings, then you’re not giving your budget a chance to work.
Generally, it’s a good idea to have three to six months worth of expenses set aside and the more you can save the better. Having just $1,000 in the bank can be enough to keep you on track when your car breaks down or you have to take your dog to the vet. Even if you can only afford to save $25 a week, it can add up to big bucks over time if you’re willing to stick with it.
5. You Can’t Say No
Not being able to say no to yourself is one of the biggest budget pitfalls you need to avoid. If you’re constantly justifying spending money on things you know you can’t really afford, it’s time to get your spending in check. That doesn’t mean you can’t spend anything on yourself but it does mean that you need to really think about the choices you’re making with your money. Budgeting a set amount for fun or little treats for yourself each month can help you keep from feeling deprived and avoid overspending.
The Bottom Line
Sticking to your budget is easier said than done. But it’s not impossible. Taking the time to figure out what’s working and what’s not can help you get your finances out of the red and into the black.
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