5 Reasons Your Budget Isn't Working

Having a plan for your money should help you manage your funds better and ensure that your money is going to support your goals and your values. But just creating a budget does not guarantee that it will work. It’s important to make a budget that you can stick to and then hold yourself accountable. Here are some of the top reasons why budgets fail and some ways to avoid them, thus protecting your financial present and your fiscal future.

1. You’re Making Unrealistic Assumptions

A budget generally involves evaluating where your money is going currently and then mapping out where you would like it to go in the future. But if you have set an unrealistic allocation for your funds, it isn’t likely to work.

This can range from not including all your expenses to underestimating how much you will spend on certain categories and thus forgetting to cut back on others. It’s important to track your spending honestly and regularly so you can continue to adjust your budget. It can be easy to account for regular and predictable expenses like your monthly mortgage payment, but do not forget to leave room for the variable ones. People often forget to include annual or semi-annual bills like car insurance, holiday presents or a vacation fund the first time, so it’s a good idea to update and tweak that budget often.

2. You Forgot About Taxes!

The amount of money you have available to spend in your budget is not the salary you negotiated when you signed your contract. It’s also not really the hourly wage you make multiplied by the hours you work. The money you have available to put into your budget is actually what is left after paying income taxes. This means after all taxes — federal, state and local. It’s important to make sure you are using your net income (take-home pay or after-tax pay) when allocating funds to your budget. Otherwise you may be spending more than you actually make and driving yourself into debt.

3. It Doesn’t Reflect Your Goals

A budget may seem like a month-to-month list or plan, but it’s important that it has a greater purpose. If you do not have financial goals, it can be difficult to see a purpose, stay motivated and find success. It’s a good idea to think about short-term desires like a vacation or new investment wardrobe piece as well as long-term goals like having enough money in retirement or saving for a home down payment to help you measure your accomplishments and push you to move even further. Ideally, your budget should reflect your goals and your values.

4. You Didn’t Add Any Wiggle Room

You may set up your budget with the best of intentions and a commitment to strict spending and no-nonsense saving, but that is likely setting an unrealistic guideline for your finances. In reality, there are unexpected or just random costs that you may not be able to predict ahead of time or include as part of each month’s allowance. If you have a $2,000 car repair bill come in at the end of the month, but don’t have an emergency fund or room in your budget to cover it, you could find yourself forced to use credit cards or even a personal loan, which can be especially pricey if you have a bad credit score. (You can check your credit scores for free on Credit.com to see where you stand.)

Instead of leaving no space for these types of expenses and resenting your budget, it can be a good idea to try to adjust regularly, leave room for some fun and most importantly, pad your budget with a contingency fund so you have the chance for a surplus instead of ending up with a shortage each month.

5. You Aren’t Sticking to It

The No. 1 reason people do not find success with their budget is that they are not using it properly. There is no reason to go through the process of tracking your spending and creating a budget just to ignore or cheat on it. You cannot type numbers into a spreadsheet or open an account with a budgeting app and expect magic to happen. A budget requires work, and you will likely have to refer to it frequently throughout the month, making comparisons to be sure you are practicing self-discipline and staying on track.

Getting organized about your income and expenses will help you use your money better. Be sure you are creating a realistic budget and avoid the above mistakes to make sure it works for you.