Are you in a constant battle with your budget? For the two years of my marriage, I was too. We wanted to be financially responsible and we were trained that financially responsible people kept budgets. But it is hard. Luckily, there is something much more effective than a budget to keep you and your family on the right financial path.
Why Your Budgets Fail:
There is no correct allotment
This is probably the main reason people fail. We tracked our expenses for months. We figured out about how much we spent at grocery stores, gas stations, bills, etc. We set our budget to those amounts. We failed, repeatedly. The reason being that if the allotment was too low, you struggle, run out, and fudge. If the allotment is even a little high, you don’t improve and you actually get worse. When you see an extra $20 in your “bills” fund you think about what monthly payments you could get that cost $20. If you see it in your “groceries”, you relax a little and buy fancy stuff the next month (probably overspending the $20). If you see it in your “apparel” budget, that cute pair of shoes is irresistible. No matter what amount you choose, some months you will have extra and/or some months you will struggle.
Categories are confusing
To start off, you’ve got to set up clear, mutually exclusive categories. Is nail polish “toiletries”, “apparel”, or the “wife’s discretionary”? Is the soda you buy for a party “groceries” or “fun”? It is a personal choice, but you need to think it through ahead of time.
Split receipts are a pain
If you buy your kid some socks at the grocery store, does it add to your “grocery” expenses or does it get split out to your “apparel” category? Costco receipts are particularly troublesome because just about anything could be on it.
You have to break the budget to save money
A few weeks ago we bought a welder and all the accessories from a friend at a crazy good price. We had been wanting one for years and even have a brilliant money-making opportunity that requires one. We expected to pay more than twice the price we paid. Had I been budgeting, I surely wouldn’t have had the required $600 in my “tool” category. I just bought some for Christmas. When there are great sales on things you plan on getting, you need the flexibility to act.
It is against human nature
What is the purpose of budgeting? Help you become financially secure. Budgeters will never get there. You can’t feel safe if you are constantly checking your balances and trying to get ends to meet until your next deposit. Human nature doesn’t want to feel trapped by finances. It isn’t fun, it isn’t healthy, it isn’t worth it.
What to do instead:
For the last two years, we have used a different method: tracking and analyzing expenses. Roughly twice a month, review my receipts, bank account, credit cards, PayPal, Amazon, and any cash purchases I’ve noted. Every penny is itemized, categorized, and analyzed in my annual financial spreadsheet. It takes a little time, but I can usually get through it in about a half-hour and I don’t have to think about it constantly like a budget.
There are so many advantages to tracking spending!
- I am not trying to target a specific number with each category relieving stress, and opening up flexibility with sales.
- I can focus on continual improvement as I try to lower each category’s monthly average.
- I have a record of all purchases and dates. I can filter for specific items and see exactly how many boxes of goldfish I buy annually. This helps me know how much I can buy without worrying about expiration dates. I can figure out exactly how much a baby shower cost me by summing the various items. I can look back and know by my hardware purchases when it was that my father-in-law came over last year and worked on the project car. I can use filters to know roughly how much I spent in sales tax (for tax return purposes). This data captures so many things!
- I can easily figure out good deals. Since I have the spreadsheet on my phone, I can quickly look up while in a store if I got a better deal on oatmeal at Winco or Costco. For items that I like to compare, I add information in a unit price section so it is even easier.
What we still budget
There are only 2 categories that we still budget out: giving and investing. The reason those are still in the budget is because they are more like a quota. We want to spend the full amount each year. For those unique categories we try to increase the number, not decrease it.
For those true “budget” items, we’ve found that is by far easiest to stick to your budget with automation. Make sure to have a percentage of your paycheck deposited into your 401k automatically. Many charities have the ability to accept direct deposits as well. If you can, set up your direct deposit allotments to put either a dollar amount or a percentage into separate banking accounts for savings, giving, investing, or any other allotment you never want to shortchange.
There you have it. Don’t fight the system, ditch it and do something that actually works.
P.S. If you’re as crazy as me about spending as little as possible for full results, don’t buy anything without consulting the discounted gift cards at giftcardgranny.com first. It is 100% free to sign up and now they even have additional digital/printable cards that you don’t have to wait on the mail for! I’ve been using Gift Card Granny for years and get an average of 9% off every card! That can add up fast since almost every store has gift cards.
You’re Welcome! -Milly
Disclaimer: I am not a licensed or certified financial coach, planner or adviser, just an enthusiast. Anything I recommend should be personally analyzed and discussed with your financial adviser.