Make Your Budget Work [Tips for overcoming obstacles]
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You're ready to take control of your finances and use a budget to plan for your income and expenses. But that “b” word doesn't exactly give you the warm fuzzies.
You know though, telling your money where to go is better than wondering where it went.
While budgeting methods such as the 50/30/20 percentage system, the “pay yourself first” method, zero-based budgeting, or cash in different envelopes can all work, there are plenty of obstacles to successful budgeting.
So let's take a look at the challenges many people face when trying to create – and stick to – a successful spending plan.
Overcoming Budgeting Obstacles
Julie Grandstaff, author of Save Yourself: Your Guide to Saving for Retirement and Building Financial Security, explains that people she’s talked to about saving money or creating a budget make comments like:
“It’s pointless. Whatever I manage to save gets used up by some unexpected expense.”
“Every time I try to live by a budget, something comes up that throws the whole thing off.”
If you’ve said something similar after struggling to use a budget, you’re definitely not alone. But, if you take some time to go through your bills, credit card statements, and bank records, you could probably predict the vast majority of your expenses.
Even though you won’t necessarily get a monthly bill for everything you have to pay, you can start managing your finances as if you did.
Owning a car or a home will bring maintenance and repair expenses. If your health care plan has a deductible and copay, you’ll eventually pay something for a doctor’s visit or prescription.
You’ll also likely buy gifts for, or travel to, family or friends.
It’s a given. So you really couldn’t call these costs unexpected, though they may be untimely. Since you can reasonably predict them, you'll want to set some money aside for them in your budget – even if none of these expenses are imminent.
Expecting the “Unexpected”
Here are a few tips for estimating what to include in your budget for irregular expenses, aka obstacles to successfully adhering to a budget.
Obstacle #1: Your Home
The “square foot rule” is a good place to start. To follow this rule, you'll budget for typical home maintenance and repairs, which average about $1 per square foot per year.
If your home has 1,500 square feet, you should be saving $1,500 per year or $125 per month. You won’t necessarily pay that every year, but if you live in your home long enough, you eventually will.
You should be saving at least that amount to plan for significant house expenses. Then, you’ll have the money available when a costly repair is required. You may need to save even more per month if you know your furnace or roof is on its last legs.
Start a separate sinking fund for home maintenance in your high-interest savings account. The online bank Ally allows you to set up ten different “savings buckets” within your account to help you reach specific savings goals.
Obstacle #2: Your Car
To estimate how much you should save for vehicle maintenance costs to avoid this obstacle, use the Total Cost of Ownership Calculator from Edmunds.
There you can enter the make, model, and year your car was made to find out what you could expect to pay for maintenance and repairs for the next five years.
For example, Edmunds suggests owners of a 2015 Taurus Sedan could expect to pay about $2,600 in maintenance and repairs in 2020.
If your car is expected to cost you $2,600 per year, be proactive and set aside at least $200 per month in your budget. This will help you avoid putting car repair bills on a credit card you may not be able to pay off at the end of the month.
With average APR’s of credit cards between 15-22%, your repair bill could cost you a lot more than the amount at the bottom of your service invoice.
And remember, if you don’t run into any car troubles this year, you’ll have a good chunk of money set aside to address problems you'll have in the future or to purchase your next vehicle.
Obstacle #3: Health Care Expenses
Expenses for health care are a frequent cause of financial stress. In fact, medical bills and time out of work for illnesses and injuries are the leading cause of bankruptcies in the US.
To minimize your risk of getting tripped up by this obstacle, work toward accumulating at least your health plan’s deductible in savings.
Plan to accumulate an annual deductible of $1,800 in 12-months, by setting aside $150 per month. Your stretch goal over time is to accumulate your maximum out-of-pocket expenses.
If you have costly prescriptions, shop around for better prices. Don’t assume the pharmacy you always go to is giving you the lowest price around. There are several ways to save on prescription medications.
Obstacle #4: Family and Friends
Birthdays, holidays, celebrations, and family gatherings can all put a dent in your bank account. But you know when they’ll happen, so now you need to plan for them.
Overcome this budgeting challenge by deciding now how much you'll spend on upcoming family and friend celebrations.
Then, set money aside monthly to cover those expenses–instead of waiting until the event is looming over your head.
These types of expenses are part of your cost of living and need to be part of your budget. If you don’t include them, they will inevitably cause you to blow it.
Making an effort to predict your future expenses is the key to successful budgeting.
Putting away money in advance allows you to stick with your budget and shift other money toward building your emergency fund and investing for retirement.
Additional Challenges to Successful Budgeting
Once you include more expected expenses in your budget, there are a few other budgeting challenges to consider.
These can also tank your budget if you don’t take the time to understand how they could impact long-term positive changes to your financial health.
1. No Emergency Fund.
It’s essential to start building an emergency fund – even if you're paying down a significant amount of debt.
Add an emergency savings line item to your budget so that if something completely unexpected happens, you’ll have some funds available to use.
2. Failing to Track Every Expense.
As you build a budget, you’ll look carefully at all your spending. But as time goes on, it’s easy to fall back into old spending habits and skip keeping track of each time you swipe your credit card.
Consider using online tools such as Tiller Money or Mint to simplify the work required to track your spending.
3. A Lack of Financial Literacy.
You’re not alone if you consider yourself a novice when it comes to understanding money and how to build wealth. But the fact that you’re here shows you can find information to change your financial future.
It’s OK to start slow. Commit to reading a couple of articles each week, follow a few financial bloggers, or listen to a podcast about a money topic you have an interest in.
Check out our reviews of financial apps, books, courses, products, and services.
There are even fun games and activities to play with your teens and young children to help boost everyone’s knowledge about money.
4. Impacts of Your Money Story or Mindset.
Money can elicit a whole slew of feelings: shame, pride, guilt, stress, and more. And, more often than not, these feelings about money stem from your childhood.
You might have a scarcity mindset if a lack of money was a problem in your family. If finances were a taboo topic in your home growing up, it could affect how you handle financial matters in your relationship too.
It may be essential to re-write your money story or adopt an abundance mindset and make more money decisions based on your values.
Budgeting may get much more manageable once you address what influences your spending.
Final Thoughts on Dealing With Common Budgeting Challenges
“Unexpected expenses can throw a monkey wrench into anyone’s plans and are a big contributor to increasing debt,” according to Julie Grandstaff.
If you already have a lot of debt or owe money at very high interest rates, you know how hard it is to get ahead of your payments.
Using a budget is an excellent way to understand precisely where your money is going, so you can start paying down debt and making progress on your financial goals.
Keep in mind, successful budgeting isn’t just a “set it and forget it” thing.
You’ll need to monitor your progress and tweak your budget over time, especially as you're beginning. Or whenever you have a significant change in your life.
But all of the effort you put in to address the obstacles and challenges to successful budgeting will be worth it when you see your debt levels decreasing and your savings growing.
By Women Who Money Co-Founders, Vicki Cook and Amy Blacklock, with contributions from Julie Grandstaff.
Julie Grandstaff is the author of “Save Yourself: Your Guide to Saving for Retirement and Building Financial Security.” She's a twenty-five-year veteran of the financial services industry, where she managed billions of dollars for both individuals and institutions. She retired at the age of fifty-one. Her new book, “Save Yourself”, is a comprehensive guide to saving for retirement and shoring up your financial security so you can do whatever it is you want. See our review of Julie's book here.