Budgeting is one of the most important skills a person can learn in order to be successful financially.
But it’s not always easy.
There are a number of common budget challenges that people face, and each one can be difficult to overcome.
Here are some of the most common budgeting challenges and how to deal with them.
Not knowing where your money is going (lack of awareness)
If you’ve ever wondered where all your money went, you’re not alone. This is a common budget challenge most people face at some point.
The solution is to start tracking your spending.
Use a budgeting app or spreadsheet, or even just the Notes app on your phone to keep track of what you spend.
The awareness you gain will help you re-evaluate your spending habits and how they reflect your priorities.
Not setting goals/priorities (lack of clarity)
One of the best things you can do for your budget is to set clear goals.
What are you saving for? What are your priorities?
Once you have a clear understanding of what’s important to you, it will be much easier to stay on track with your budget.
Using the wrong budget method
There are a number of different ways to budget, and finding the right one for you is crucial.
The most important thing is to find a system that works for you.
There’s no perfect system, so don’t get too caught up in trying to find one.
Just find a method that will help you identify and spend according to your priorities.
Not knowing how to budget for irregular expenses
Irregular expenses, like car repairs or prescription medications, can be tricky to budget for.
They’re expenses you know will happen, but you don’t necessarily know when or how large the bill will be.
One way to deal with these costs is to create sinking funds.
Sinking funds are basically dedicated savings buckets where you set aside money, usually into a savings account, so it’s there when you need it.
When something comes up, you can use the money from your sinking fund to cover the cost without having to dip into your other savings or go into debt.
You may still not have enough set aside to cover everything, but sinking funds can help ease the burden of unexpected costs.
Underestimating your spending
When creating your budget, try to overestimate your costs so that you don’t find yourself short when the bills come due.
Living beyond your means
Living beyond your means is another common budget challenge. It’s easy to fall into the trap of buying things we can’t afford.
The best way to avoid this is to get clear on your values and be mindful of how much money you spend. Just because you can afford something doesn’t mean you should buy it.
If you’re struggling with living within your means, it may be time to reassess your priorities and see where you can cut back.
If you find yourself spending impulsively, the first step is to figure out what your triggers are.
What makes you want to buy something? Is it a certain time of the month? A special event?
Once you know your triggers, you can start creating barriers to help you resist temptation.
For example, if you know that you’re more likely to spend money when you go out to eat, make a rule that you can’t eat out more than once a week.
Or, if you know that you tend to overspend at the mall, try going on a shopping ban.
Budgeting for impulse buys is also important.
If you know that you’re going to spend money on something, add it to your budget and give yourself a limit. This will help keep your spending in check and prevent overspending.
Not giving yourself any fun money
A huge budget challenge most of us face at some point is the feeling of deprivation.
Even when we’re clear on our priorities, there’s not always enough money to afford everything we want when we want it.
To combat this feeling and prevent yourself from giving up, it’s important to budget some fun money.
Fun money is a set amount of cash you give yourself permission to use for whatever you want, no guilt or justifications needed.
How much fun money you give yourself will depend on your priorities, but even if you start with just $5 to splurge on Starbucks with help keep you from resenting your budget.
Not having an emergency fund
An emergency fund is a must for any budget.
This is money that you set aside for unexpected expenses, like a job loss or a medical emergency.
Having an emergency fund will help you avoid scrambling to find extra money or going into debt when the unexpected happens.
How much you should save will vary from person to person. A good rule of thumb is to save up to 3-6 months of living costs.
Not tracking your progress
It’s easy to get discouraged if you don’t feel like you’re making any headway toward your financial goals. That’s why it’s important to track your progress.
Budgeting is a process, and it takes time to see results.
Tracking your progress both in terms of your goals and your spending will help you maintain your momentum and see where you might need to make adjustments.
Some common things you may want to track include:
- savings goals
- debt payoff goals
- your net worth
Struggling with debt
If you’re struggling with debt, it can be difficult to make headway on your budget.
The first step is to create a repayment plan. This will help you focus your efforts and pay off your debt as quickly as possible.
There are a few different methods you can use to repay your debt.
The snowball method involves paying off your debts from smallest to largest.
The avalanche method involves paying off your debts with the highest interest rate first.
Whichever method you choose, make sure you’re disciplined and follow your plan.
To successfully budget your debt payoff, make sure your budget covers your payment, your interest, and any extra spending you make on your credit cards so you can avoid adding to your debt.
Accumulating credit card debt
If you use credit cards, it’s important to pay off your balances in full each month to avoid accumulating interest.
Interest can quickly add up and make it difficult to get ahead on your debt.
To avoid paying interest, make sure you’re only using your credit cards for things you can afford to pay off in full each month.
You may also want to consider transferring your balance to a 0% interest credit card. This can help you save money on interest and pay off your debt faster.
Failing to plan for big expenses
Large expenses can throw off your budget if you’re not prepared for them.
To avoid this, start saving for big purchases as soon as possible.
If you know you’ll need to replace your car in the next few years, start setting money aside now.
The same goes for other high-cost things, like vacations, home repairs, and medical bills.
Making late payments
Late payments can damage your credit score and cost you money in fees.
To avoid this, make sure you’re always paying your bills on time.
Set up automatic payments if possible, so you don’t have to worry about forgetting.
You can also set up reminders in your budget, so you know when each bill is due.
Overspending during the holidays
The holidays can be a tough time to stick to your budget.
There’s pressure to spend money on gifts, travel, and food.
To avoid overspending, start planning early.
Set a budget for each person you need to buy a gift for, and stick to it. If you’re traveling, look for ways to save on transportation and accommodation. And if you’re hosting a holiday gathering, make sure your menu is affordable.
Not budgeting consistently
Budgeting is a process, and it takes time to see results.
However, if you don’t budget consistently, you won’t be able to make progress on your financial goals.
Make sure you’re reviewing your budget regularly and making adjustments as needed.
Start by budgeting per pay period until you’re able to get ahead. Then you can start budgeting further out.
Forgetting to check in with your budget
Learning to check in with your budget before you buy something is an important habit to develop.
This will help you stay on budget and avoid overspending.
When you’re about to make a purchase, check your budget to make sure you have the funds allocated for it.
If you don’t, make sure you find the money first.
Pull money from other budget categories to cover the purchase instead of buying on credit.
Failing to adjust your budget
Your budget should represent your priorities.
As your priorities change, your budget should change with them.
Whether it’s major life events like having a baby and buying a house or smaller shifts like compensating for rising gas and grocery costs, your budget will need to be adjusted.
Make sure you’re regularly reviewing your budget and making changes as needed.
Not updating your budget
Your budget should be a living document that you regularly update.
As your income and expenses change, your budget will need to be updated to reflect those changes.
Make sure you’re reviewing and reconciling your budget regularly. This will help you stay on track to reach your financial goals.
Feeling like there’s not enough money
This is a sneaky but common budget challenge.
Even when you’re doing well with your budget, you may feel like there’s not enough to go around.
A great way to confront this is to take on a savings challenge.
Savings challenges are a fun solution to find extra savings you might not think you can afford.
The idea is to gamify your savings, so it’s more fun to save a bit extra than spend it.
Use savings challenges to build your emergency or sinking funds and help reinforce your budget.
Budgeting can be tough, but it doesn’t have to be.
By being aware of the most common budgeting challenges, you can be prepared to deal with them when they come up.
And by following the tips in this article, you can make sure you’re on track to reach your financial goals.