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It's a common problem: You set up your budget with the intention to improve your finances and stick with your plan. Then, your grocery bill or electric bill adds up to more than you anticipated. Or, you cave on a splurge that sends your budget off the rails.
Budgeting mistakes happen. Try not to let financial stress add tension to the situation. Instead, take these steps to get your finances back on track.
1. Cut Yourself Some Slack
When a money problem appears, stress abounds. But feeling stressed about money can take a toll on your mental health, and it's hard to think productively when you're being hard on yourself.
Consider that, if a friend came to you because they needed to talk through budget problems, you'd likely try to suspend judgment and instead offer them objective, honest advice. By the same logic, you can send your inner critic packing and offer yourself the same kindness that you would extend to your friend.
2. Assess What Happened
To get to the bottom of your busted budget, pull up a record of your transactions through your bank or credit account. Review your transactions to get a clear picture of what happened. It could be a combination of things.
Here are some common pitfalls that may cause you to blow your budget:
- A one-time expense: Getting hit with an unexpected expense such as new tires for your car can put your spending over the limit. The solution to this problem is to build emergency savings that can cover these expenses without dipping into your regular funds.
- An unrealistic budget: One common budget mistake is underestimating your actual bills or the cost of groceries and other necessities, leaving you without enough money allocated. To avoid this mistake, tweak your budget or do a complete overhaul, ensuring you're accurately earmarking funds based on your actual tracked expenses.
- Lower income than anticipated: When your actual earned income comes out to less than you anticipated, you can end up short on funds. Consider reading up on budgeting with irregular income and build a buffer (learn how below), or double-check that you're not taking too many exemptions on your taxes, which decreases your take-home pay.
- Living beyond your means: If overspending on retail, dining or something else discretionary is your budget's kryptonite, find ways to rethink your spending habits. Consider setting clear limits for discretionary spending to balance the occasional splurge with a commitment to building financial stability.
3. Temporarily Cut Back
If you've eaten into money you need for expenses, pulled from savings or gone into debt, go into budget damage control mode.
You may need to cut back all your spending, minus bill payments, housing payments and the minimum payments on your debt. Consider ways you might lower your expenses or find supplemental income while you rebuild your finances.
You could try tweaking a no-spend challenge so that it works for you. For example, you could challenge yourself to eat through forgotten pantry and freezer items, researching creative ways to combine ingredients without making a trip to the store. To round out your food options without spending anything, you could check a local buy nothing group, where neighbors sometimes give away unopened food they don't need.
4. Build a Budget Buffer
While your budget should be neat, life often isn't. That's why building flexibility into your budget is key. A budget buffer is one way to do it.
A budget buffer is a type of sinking fund that you put a little money into each paycheck. It's there to smooth over small fluctuations or unplanned spending that could otherwise compound to throw your budget off.
A buffer is kind of like a baby emergency fund. Like an emergency fund, it's money that you ideally never want to use. Unlike an emergency fund, though, the money is flexible. You can use it for incidentals that you wouldn't use your emergency fund for but that are threatening to derail your books.
5. Track Your Progress
As you work on sticking with your budget and adapt your spending plan to work for you, keep track of your progress. You'll have an easier time making course corrections when you can clearly see what's working and what isn't. In addition, watching your efforts pay off gives you reason to celebrate.
Consider a budgeting app that lets you take a look at how your financial health changes over time. There are numerous options: For example, the YNAB (You Need a Budget) app shows you the "age of your money," with the goal to increase the time between when you earn money and when you spend it. Personal Capital lets you connect various investment and financial accounts to see your long-term investments, short-term savings and checking in one neat package.
Know Your Full Financial Picture
In addition to tracking your spending and using apps that show your full financial picture, start tracking your credit score through Experian to see how your credit management habits pay off, too.
For instance, you can track how your creditworthiness shifts over time as you pay down debt and continue making on-time payments. In turn, you may qualify for better lending rates and terms when you need to borrow money.