Whether it is learning to ride a bike, drive a car, or budgeting, there are times in life when we will make a mistake. When you make mistakes with your budget, you can take it as a learning experience and improve each time. Here are 10 lessons from a failed budget that will help you make better financial decisions.
Be Patient, Yet Persistent
Whether you’re just learning how to budget, or you’ve had a change in your finances and are starting again, building a successful budget takes time. Be patient with yourself throughout the process, and don’t get discouraged by any setbacks. Instead, you can use the setbacks as motivation to stay on track and celebrate the small victories along the way.
Patience and persistence are needed to remind yourself that being financially successful is all about the lessons learned on the journey, and not the destination.
Realistic Goals Are The Key
When you set realistic financial goals, you can break the goals into smaller, more manageable steps. This helps you achieve the goals, rather than abandon your budget entirely because you are becoming frustrated.
For example, rather than aiming to save $5,000, break it down into smaller chunks. Like $500 per month for the next 10 months. An even smaller step is $125 a week for the next 10 months. By setting smaller goals, you gain momentum through the accomplishment you feel, which helps you stay on track.
Tracking Accurately is Vital
Speaking of staying on track, be sure to accurately track your income and expenses.
Your budget is only an estimate of what you will earn and spend; you need to accurately track both earnings and spending for your budget to reflect your actual financial situation.
I like to use the zero-based budgeting method when I am tracking my budget, and this expense tracker ensures that I am not forgetting about any expenses that can make my budget inaccurate. This also helps me identify any discrepancies in my expenses.
An Emergency Fund is Crucial
I’ll say it again: an emergency fund is crucial. When there is no emergency fund, your budget is derailed quickly by any unexpected expenses. Ideally, you want to have an emergency fund that will be able to handle any unforeseen circumstances. It’s your safety net, and an essential component rather than something that you view as optional.
A completed emergency fund typically covers 3-6 months of expenses but can cover smaller unexpected expenses in the process, as long as what is used is reimbursed. You can read more here about how to start building your emergency fund.
Understand Your Spending Habits
With a thorough analysis and a good understanding of your spending habits and spending triggers, you can easily identify areas you would likely overspend. Be sure to categorize all expenses to identify areas of your budget that need to be looked at closely. For me, this is always coffee and books.
Once you know the areas you overspend, find ways to help you remain within budget. That could involve cutting any unnecessary expenses and finding a more cost-effective alternative. I have started buying books I want to read second-hand, and I limit myself to a few coffees a week because it doesn’t play nice with my stomach.
For you, it could be cooking at home more often rather than eating out, or if you already cook from home, buy vegetables to cut rather than the precut ones. Once you know your spending habits, you can hone in on what areas to cut back on.
Changes Are Necessary
As mentioned above, finding ways to cut costs within your spending habit is a perfect example of how changes in your spending behavior will be needed. You cannot simply create a budget, and think that it will work out in the end; that neglects a lot of work that is needed to be done for you to reach your financial goals.
You need to be willing to adjust your spending habits and make conscious efforts and decisions to adhere to your habits. When you understand your spending triggers, you can develop strategies to address them and make necessary positive changes.
One solution for impulse buying I have implemented with my younger son is that I take a picture of all of his “wants”; usually he forgets about them, but occasionally there are a few “wants” that stick. These are the items I buy him for his birthday and holidays. This helps give him a cool-down period to determine if they were something he wanted or something that just looked neat because it was new & different.
Prioritize Essential Expenses
When you can distinguish between your essential and non-essential expenses, it makes prioritizing your spending much easier. This means you need a clear definition of what are needs and what are wants.
- Essential expenses are those that are considered necessary for basic living and well-being. These are your non-negotiable expenses and should be prioritized within your budget. Examples include your housing costs, utilities, groceries, transportation, etc.
- Non-essential expenses are not necessary for your basic living and well-being. These expenses add to your quality of life, but can also be reduced, or even eliminated, without impacting your quality of life. Examples include dining out, convenience purchases, impulse buys, etc.
Once you take care of your essential expenses, you can allocate any funds remaining to your discretionary spending (non-essential expenses).
If you need help reducing your discretionary spending, click here to learn more about how to complete a no-spend challenge.
Regularly Review And Adjust Your Budget
Life happens, and as we do, we adjust our priorities based on what happens in life. Our budget needs to reflect these changes. Whether it’s an income increase, changes in your savings goals, or having to feed three teenagers, your budget needs to account for these stages of life.
By regularly reviewing and updating your budget, you can ensure that it remains relevant to your priorities and your life. I like to perform a budget review monthly using my budget workbook. While you can review your budget whenever you feel like it, I recommend sticking to a monthly or quarterly schedule. This way you can see the progress you have made on goals, make any necessary adjustments for what is coming up, and reallocate any funds based on your priorities changing with your life.
Head here to learn more about how I complete a budget review.
Learn From Your Mistakes
While it can be easy to dwell on what didn’t go right, it is also the perfect opportunity to learn and grow. Learning from what doesn’t go right within your budget is the first step towards improving your budget, and making it fit your life and goals.
Through reviewing your budget, you can see areas where adjustments could be made for a better outcome. Rather than viewing a failed budget as a personal failure, see it as the opportunity to adjust your spending categories, adjust your spending habits and behaviors, and grow to reach your financial goals. You could also identify any specific challenges that led to this budget’s failure, and learn from them.
For example, there are times when my fuel bill is wildly overspent. These are times when I have multiple appointments that require a lot of travel. Rather than see that overspending as a failure, I can make a note of it, and plan for the next time those appointments come up. Learning from your mistakes is an essential part of financial growth.
Communication And Teamwork Are Required
Did you know that when it comes to discontent, discord, disagreement, and dissatisfaction within relationships, money is the major source? When you are sharing your finances with others, such as a partner, spouse, family members, or even roommates, you need to have an open discussion about what the financial goals, priorities, and potential challenges are for the arrangement.
You are much more successful when you collaborate than trying to manage all of the finances independently. This is one area that I know very personally from my marriage, and it is what has driven me to become a certified Financial Health Counselor.
Schedule regular meetings where you can discuss all things financial. Establish any shared financial goals, outline your individual and group responsibilities, and most importantly, hold each other accountable. This collaborative approach will create a positive and successful financial environment.
What are the lessons from a failed budget you have learned along the way? Let me know in the comments below!
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