So, you’ve created your first budget, and you’re feeling good. Building a budget is an impressive feat, and a crucial step towards achieving your financial goals. But this is not the end of the road; many budgets fail within their first few months, for a variety of reasons. The key to a successful budget lies not in getting it right on the first try, but in using it to identify your weaknesses and take the necessary steps to fix them. Here are some of the major reasons why your first budget may not be a success, and how you can learn from your mistakes.
Your budget isn’t realistic.
Perhaps the biggest downfall of any budget, especially a beginner’s budget, is a lack of realism. When you set out to create your first budget, it can be jarring to examine your spending habits. You may be shocked to see that you’ve been spending an average of $300/month at restaurants, and you may convince yourself that you could easily bring that number down to $75. By setting this number so low, however, you’re likely setting yourself up for failure, at least initially. Our spending habits, like all habits, don’t suddenly change overnight, even with a budget. It would be more beneficial to gradually lower your spending on restaurants by, say, $25/month until you’ve reached your desired level. Budgeting is a marathon, not a sprint.
Your budget lacks information.
Budgeting can be especially difficult if you’re not able to easily access important financial information, particularly in the beginning. Sometimes your bank or credit card statements won’t paint a comprehensive picture of your spending. If you have an irregular income or rely on tips or commissions, you may not have a solid understanding of how much money you bring in. This can lead to some wacky guesstimates and allocations, creating a first budget that looks more like a troubled math problem than a map towards financial success. But rather than letting this deter you, let it inspire you to better understand your situation. Dedicate time towards tracking your spending or your income, and then use that information to tackle your budget again.
Your budget doesn’t fit your lifestyle.
Sometimes, beginning budgeters find it easier to select a tried-and-true system, such as the 50/30/20 budget, to better understand how they can break down their spending. But budgets are not one-size-fits-all, and what works for one person—or even many people—won’t necessarily work for you. Many financial experts, for example, suggest spending no more than 25-30% of your income on housing. In my situation, living in New York City and holding a job that wasn’t exactly high-paying, this benchmark would be difficult to meet. Rather than stress myself out trying to meet this quota, I’ve accepted it, working out my budget so that I’m able to pay 35-45% of my income towards my rent without feeling any guilt. Don’t beat yourself up if you find that some of your spending seems anomalous. Instead, use your budget to evaluate your priorities and make adjustments in other areas that you don’t consider with as much regard.
You don’t have clear goals.
A budget is an awesome tool to help you achieve your financial goals, but, if you don’t know what those goals are, it can be tricky to stay motivated. If you begin budgeting with the idea that you simply want to “save money,” for example, chances are good that your spending will eventually creep up and you’ll lose sight of the endgame—because you’re not entirely sure what that endgame even is. But if you want to save money so you’re able to afford a down payment on a house, now you have something specific that you’re working towards. Each purchase can be evaluated against your potential future home, helping you to better understand your values and ensuring that you only make purchases that enrich your life and keep you on the right track.
You can’t say “no.”
Although it can be difficult to hear, all the budgeting in the world won’t help you if you’re not willing to make some sacrifices. Budgeting sometimes means you won’t be able to say yes to every single happy hour or to yet another new pair of shoes. Most times, however, you’re saying “no” now so that you’ll be able to say “yes” later—often to something exponentially more fulfilling. Still, this is the aspect of budgeting that causes many people to squirm, and I understand the impulse. But learning to say “no” is an incredibly valuable skill, teaching self-discipline and self-control, and one that successful budgeters have in spades.
Big City, Small Budget 