How To Fail At Budgeting (and How To Budget To Win)

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Right up there at the top of my “I hate this” list is: budgeting.

Seriously.

I know it’s probably one of the most important things you can do as a “full-fledged” adult. And I know just how valuable it’s been to us to get our finances under control and on the right track towards debt freedom and, eventually, financial independence.

But boy oh boy, is it tedious, time-consuming, irritating, and often depressing.

That newer car you want?

Can’t fit in the monthly payment while paying off existing debts.

That blouse you just LOVE and try to justify because it’s on sale?

Whoops — the clothing budget has already run out for this month (or maybe didn’t even exist).

It’s both a blessing and curse to have a solid, tightly-regulated budget because you have the freedom to use the money once it’s been properly categorized, but also the restraint and irritation at being told “no.” By yourself, of all people.

Why do I need a budget?

Let me ask you this: are you like the typical American family and you’ve got debts on your shoulders but done even fully realize it?

Credit cards with balances that you’re entirely not sure the total amount you owe on all cards?

Student loans that just sort of hang around for years like that cobweb everyone keeps forgetting to clean but it never really bothers anyone so it gets left alone to do what it does?

A car payment, month after month, year after year, even after the car starts breaking down and becoming a sore spot in your life?

Have no actual clue what the answer to the question “can I afford this” is?

Then you, my dear friend, are in need of a budget.

We were there once. Newlyweds, both working good jobs with a good income, renting our first apartment, and thinking that life was just wonderful.

It didn’t take long for two kids starting from scratch to rack up financing debts with buying furniture. We were both moving out of our parents’ houses, after all, and had really nothing to start with but for a desk, armchair, and mattress.

We even bought the cheapest furniture we could find (but it was all still brand new from stores).

Live and learn, right?

It only took a few months in the apartment before we were itching for our own house, our own “really ours” space (we were at least smart enough to settle on a suburban house to start, and not hold out for the little farm we dreamed of owning).

Surprise! That’s when we found out really just how badly our finances were upside down. We had savings, sure, but versus our total debts (credit cards, a used car, and student loans) not nearly enough.

Some napkin math told us our worst news yet: at your current earning/saving/spending rates, you’ll be able to afford a down payment when you’re maybe 40.

We were 22 and 23 at the time.

So I’ll cut to the chase here: you need a budget because it’s the only way to make sure you’re on track to do what YOU want to do with your money, instead of using the back route to line the pockets of the creditors and bankers.

“But I have a house and cars and all that already!” you might argue.

Then let me hit you with the old “life happens” line:

• At 22, I was half of a newlywed couple, in our first apartment.
• At 23, that apartment had a total loss fire. We had started the mortgage process and had our offer accepted on our first house the day before the fire.
• At 26, we had our first baby (and raising a baby on one income was trickier than we thought it would be).
• At 28, my husband was diagnosed with cancer, with about a 20-30% chance of survival, the same day that our second child was born.
• At 30, he relapsed.

(If you’re wondering, I’m thrilled to report he achieved a complete remission his doctor’s still can’t explain, had a successful bone marrow transplant at their recommendation as a “just in case,” AND, thank God, managed to come back to a second remission!)

Despite all of the bad luck that we’ve had mixed in, that many people never even see in their lives at all, we have fought through it all to keep our dreams alive.

We aren’t just dreaming, but working towards the goal of someday owning acreage, having a little self-sufficient mini-farm, both of us working from home/for ourselves running our own multiple businesses, all while raising good kids, giving back to our community, and doing God’s work where we can.

But let’s face it, in today’s economy and with today’s salary levels for the average middle-class worker, that’s going to either take a lucky lottery ticket or a strict budget and a lot of hard work.

Believe it or not, the budget method is the far more likely route to those dreams.

How can a budget help you?

Your car has a gas gauge so you can make smart choices with your gas while driving. Like when to fill up so you don’t try to drive 100 miles on a 50-miles-til-empty tank.

Why do your finances not have their own gauge so you can make smart choices with your money? Why do we all try to buy the equivalent of $100 with more like only $50 to our name?

Your budget is essentially the “gas gauge” for your finances.

If you tell yourself “I can only go as far as the gas in this tank allows,” well, you’ll never choose a road trip destination that you can’t reach.

Following that mindset, if you tell yourself “I can only afford what’s within the dollar amount of my paycheck,” then you’ll never choose purchases that you can’t afford.

How to budget and stick to it

We’re going to break this down to make it easier to absorb.

None of it is challenging stuff, but you’re going to want to take it in chunks so you don’t risk getting overwhelmed and scrapping the effort before you really even start.

Here’s what it takes to make and stick to a budget: a mindset shift, a system, a routine, and a determination to succeed.

Take a second here and really think about it – because THIS is the simple, 4-step approach that you need to follow to make ANYTHING happen. And here’s the best part:  it works. 

A mindset shift, a system, a routine, and a determination to succeed – the 4 simple steps you need to achieve any goal or dream. 

Change your money mindset

This concept cannot be stressed enough.

Until you can successfully look at money THE RIGHT way, you’ll always fail at budgeting.

You need 2 main beliefs that are seared into your brain, your mindset shift, to build a successful budgeting plan:

1. You shouldn’t work for your money. Your money should work for you.
2. Your creditworthiness is not the same thing as being able to afford something.

Let’s dig into those a little more.

Yes, technically you do go to work, FOR your paycheck. But what that first belief means is that you shouldn’t be working with the mentality of “I need to work, to earn this money, to pay off what I owe.”

You need to go into every day, every minute, telling yourself that your money is there to do what you want it to do.

Do you want to earn money just to send it off to a debt collector straightaway? Because that’s what you’re doing with every single debt bill you have to pay each month.

You’d much rather take your full paycheck, pay the necessities (like your housing costs and utilities), and have the rest to use as you choose. Wouldn’t you?

This leads to the second problem most people have with money, so listen close.

A practical example

Just because your credit card limit is $5,000 does not mean you can “afford” to go buy a brand new TV in time for the Super Bowl.

What it means is that the credit card company would be thrilled if you went and “bought” that $1,500 big screen TV, and silently paid them an extra few hundred dollars in interest over the next number of months or even years.

I mean, let’s face it: buying something that way is the equivalent of renting-to-own, isn’t it? You’re paying a monthly fee to use the TV, and eventually (once it’s used, and “old news”) you’ll own it for yourself.

Probably just in time to wish you could buy another one.

A $1,500 purchase will most likely have a minimum payment of say $50. “I can swing $50 a month, that’ll be no problem,” you think.

How long until you own your TV, though, at that rate?

Let’s pretend you bought it with a special 0% interest offer. That was wise, at least.

$1,500 divided by $50 is … 30.

That’s 30 months to pay off that TV.

That’s 2.5 years to pay off your TV.

That’s how long it took us to pay off our first car loan while paying off multiple other debts at the same time. Let that sink in for a while.

We paid off a $13,000 car in the same amount of time it would take the person in the above example to pay off a TV.

Don’t give in to the marketing hype. Don’t buy what you don’t need.

And, most importantly, don’t spend money you don’t have.

Budgeting for Beginners

Ok, so now you’ve had your wake-up call and you’re ready to get serious about this whole budgeting thing.

You’re ready to build your system that’ll make your money stay working for you.

But where do you start?

Part 1: Gathering the data

It’s really just a few easy steps. They are:

1. List every bill you currently pay, every debt you currently own, and every semi-regular expense you have in a year. Include less frequent expenses like quarterly water or garbage pick-up, and bi-annual car insurance costs.
2. List everything you do or might pay for outside of those bills. Here’s where you’ll include things like your monthly grocery budget, pet food/supplies, home repairs, gas for the car and yard work tools, annual doctor’s checkups, etc.

Make sure all of the items you wrote from numbers 1 & 2 either are or can be calculated in a monthly amount. If your car insurance payment is due every 6 months, divide the amount by 6. If you take your dog to the vet once, buy flea and tick prevention, or even have a licensing and dog park fee all due annually, divide the total annual cost by 12.

Write down ALL your sources of income, AFTER taxes are taken out. If you’re paid weekly or bi-weekly, then calculate what your rough monthly net income is (use a 4- week month for easy math).

There, now you’ve done the hardest part of budgeting – gathering the data.

Part 2: Organizing the list

Having all those numbers written down is a big step for a lot of people, but when it comes to budgeting, you’re not done there.

The next thing you’ll want to do is to categorize them into a way that makes sense TO YOU.

I can’t stress this enough, because if you try to follow someone else’s organization of things, you’re bound to forget something or glance over it when you go to review your budget.

Some categories you’ll want to consider including are:

• Daily expenses (groceries, gas)
• Medical (insurance if you pay your premium out of pocket, medication costs, co-pays)
• Housing/Life (rent/mortgage, utilities, phone, internet, water, garbage/recycling pickup, etc)
• Annual/bi-annual (car or homeowners insurance, auto registration fees)
• Long term debts (mortgage, student loans)
• Short term debts (credit cards, personal loans, auto loans)
• Business expenses (if you’re running a self-employed business like me!)
• Donations/Giving (actual donations, gift-giving fund, etc)
• Maintenance Costs (car repairs, home repairs)
• Savings/Retirement (for post-tax transactions)
• Goals (setting aside money for a house or car down payment, working to cash-flow a home renovation/repair, etc)

While that may seem like a fairly extensive list (and it may well be), I find it tremendously helpful to have it broken up this much.

For example, a lot of people will put all their debts into one bucket, but that doesn’t work for me. My reason for that is that it gives far better visibility to exactly how much you’re paying towards what I’ll call useless debts vs acceptable debts.

If your total category for debt payments adds up to $2000, for example, but you’ve got a $1,500 mortgage, you might mistakenly be excited when you think “hey, I’m paying off $2,000 in debts this month!”

In reality, only $500 is going towards debts (not including whatever goes towards your mortgage principal, obviously). Looks a little less exciting, doesn’t it?

Part 3: Zero Budget

Now, the smartest way to actually manage your budget, THE biggest secret to having a successful budget, is this:  you HAVE to run it as a zero budget.

Not sure what that means?

A zero budget means that you’re going to add and subtract all your ins and outs and end up with $0 as your final budget “balance.” Meaning you have assigned every last dollar to a job.

“But how? What if my expenses don’t reach the number of my income?” you ask.

You’ll take whatever is leftover, and either apply it to debts or, if you’re in the debt-free boat, you’ll put it to savings, retirement, kids’ college fund, or whatever you’re working on building up. I call this the “fun expenses.”

Just make sure the extra goes towards a $1000 emergency fund first, and any non-mortgage debts next.

Income – Expenses – Fun Expenses = $0

Many budget systems opt for having you assign money to your expenses and then indicating what you have “left over.”

On the one hand, playing the game of getting that number as high as possible is a fun idea.

But if you’re not using that leftover money wisely, then getting your expenses number as small as possible isn’t really going to do you much good.

Having a zero budget covers all your bases. You can still try to get your expenses as low as possible, but whatever you have “leftover” still MUST be assigned to something.

This is where I like to have a “debt snowball” budget item, when in the midst of working on paying off debts, or my various “cash funds” or savings funds.

How this ends up working out, is that if you’ve got a $10,000 credit card balance, and say you end up with $500 in your debt snowball envelope when your budget is done, you’ll take that extra $500 and bunch it up with the minimum payment amount that you already had set aside.

Literally, picture making snowballs. It doesn’t take much for it to go from something you can ignore when hit with it to something that leaves a bruise!

In a non-zero budget, you may have been tempted to think “I’ve got $500 extra this month!” and go on a shopping spree, or splurge on a big ticket item.

You may as well have just dropped that cash straight into a trash can, for how much good it did you.

Instead, assuming a $150 minimum payment, your extra $500 towards that $10,000 credit card balance means you’ll have that card paid off in about 1 year or so.

With just the minimum payment, it would take you closer to 5 years. And that’s not accounting for interest charges each month being added on.

4. Prune your budget

This is literally the hardest part of budgeting. Really.

This is where you are going to sit down and take a hard look at your spending and find what you can do without.

You might have an Amazon Prime account, a Netflix account, a Hulu account, not to mention you’re still paying for cable. Is all of that really necessary?

(If I had to choose one, it would the Amazon Prime account, because it’s a comparable monthly cost to the other two streaming services but with SO many extra features! I mean, you can’t get your heavy dog food bags delivered to your porch, and at a discounted price, with Netflix, now can you? If you’re looking to try Amazon Prime, you’ll 30-day free trial by using this link!)

With how much we have on our subscribe and save list (for which you only need an Amazon account but NOT a Prime membership), it was worth it to keep our Prime subscription for some TV entertainment, commercial-free music streaming, extra discounts on our subscription items (that were cheaper than at other stores already!), free magazines through the free Kindle app, and so much more.

Trust me, I know how hard it is to save money on a tight budget. Some ideas to consider when pruning your budget are:

• Removing any restaurant/take-out allowance
• Removing your monthly clothing allowance
• Ending magazine subscriptions
• Decreasing internet speeds
• Decreasing data allowance on cell phones
• Pay off your current cell phone and avoid upgrading for as long as possible
• Searching for cheaper garbage/recycling pickup costs (we have a 100% free recycling drop-off center near us!)
• Changing your own oil and rotating your own tires to save on vehicle maintenance costs
• Using the local library instead of buying every book you want to read
• Cook more of your meals entirely from scratch (even a small switch like using  cubes instead of buying chicken broth can save a ton of money!)
• Shopping around for cheaper auto/home insurance
• Selling/trading your current car for something less fancy or cheaper, depending on your situation and current monthly payment
• Refinancing some of your loans for an updated, lower rate

How to fail at budgeting

Now that you’ve got your budget set up in full, I want to go over the ways that you can turn this effort into a failure, much more easily than you would think.

1. You didn’t include enough categories.

I provided a fairly long sample list earlier in this post, some might say too long.

While everyone’s scenario and list of expenses will look a little different, the important thing to do is to split your expenses into enough categories to be informational and useful, but not so many that it may as well just be one long list.

As mentioned before, knowing you spent $2,000 towards all your debts can be useful, but if $1,500 was a mortgage payment I’d much rather know what I’m paying towards the debts I can actually budge more quickly.

2. You included too many categories.

If you’ve got so many categories that you struggle to at-a-glance find the item you’re looking for, then your budget is too detailed.

And this is coming from me, who has to write down subtasks of her subtasks on her to-do list each day. (I’m working on it, don’t judge!)

Again, keep your breakdown useful and informational, but not something that’s a nuisance to work with.

3. You didn’t run a zero budget.

Now you might not be totally on board yet for this zero budget concept, but I promise you it makes all the difference in your success with money.

The zero budget concept is pushed hard by Dave Ramsey, financial guru and debt freedom expert extraordinaire.

If you’ve never read or heard what he has to say then you’ll want to check out the podcast of his radio show.

The way the zero budget helps you win is by giving you more freedom with how you spend your money.

Yes, you read that right.

If your income can support a $100 a month clothing budget and you insist you need that, then go for it. No one is telling you that you CAN’T buy that blouse this month, they’re just saying you can’t spend MORE THAN $100 on clothing this month.

Spending freeze, be gone! You’ve got a reward/allowance built into your system now!

Just don’t forget to prioritize your money to where it needs to go before you put it to where you want it to go.

You NEED to get those debts off your shoulders.

You don’t need $100 of clothes every month (even if all your clothes were lost in a fire, God forbid, you’d need maybe 2-3 months at that rate to rebuild a satisfactory wardrobe for the time being. Just being your personal, determined coach over here, folks.)

4. You didn’t keep track of all your accounts to know where to put your money next.

Wait, what? You didn’t mention this before!

That’s fair, I didn’t specifically mention it, but it’s part of listing all your expenses, isn’t it?

Your credit card bill is an expense. While you’re looking up your minimum payment, why not jot down your current balance too?

If you make a budget and push extra cash towards debts every month then awesome! Keep going!

But which debt should you push towards first?

There’s a variety of ways to make that choice, and I won’t bog you down with that today. But I’ll tell you this:

• Debts with the highest interest are your top priority – you’re wasting too much money that you don’t have on interest charges
• The smallest debt balances are your other top priority – the quickest to get rid of, to see progress, find encouragement, and get more cash for your snowball amount each month that much faster.

For our budget, we use a combination of these two priorities, so that we know our money is making the most progress possible. If you’re someone who is easily discouraged, focus on paying off smallest to largest debt first. If you’re someone who is all about the numbers, you’ll know that your biggest savings on interest fees come from paying off the highest interest balances first.

5. You didn’t stay consistent.

It’s easy to feel like you need to modify your budget each month. You might feel like you need to add or increase a “take-out food” budget item, or maybe you’re wishing you had a “fun stuff” fund (the harsh truth is that neither of those things should happen until after you’ve got your finances well under control).

Even worse, you’re spending your budget as a cash system, and when it runs out you think “oh well” and just use a credit card.

I’m guilty; I’ve done it.

And I’ve also kicked myself hard when I see all the progress that I undid by doing so.

Don’t change your allowed amounts for your budget items unless it is absolutely critical. Change your allotted car insurance amount if your rate changes, or bump up your grocery budget by $25 or so if you truly can’t finish the month without another couple of staples (bread, eggs, milk, etc.).

Avoid credit cards if at all possible. For a while, we admittedly cracked on this rule because disability payments suck, and with numerous unexpected expenses cropping up during cancer treatments, it was either use credit cards or be unable to feed our kids. You tell me which one you’d choose.

Whatever you do, don’t forget to use your budget for a month or more. You’ll have one heck of a time getting all your numbers caught back up, knowing what you spent, where your accounts stand, and reaffirming your allowed spending amounts in your head. Chances are good you’ll just give up with the intention to start it all over later, but later has a funny way of never coming.

How to budget to win

You’ve got the right mindset, your system is in place, and you’re sure you’ll avoid some common pitfalls – you’re ready to go!

So here, I’ll leave you with some tips on how to not just budget and stick to it, but how to win the money game once and for all.

1. Make your budget part of your routine.

Your budget can be the most perfect thing this world has ever seen, but if you get it all set up and just tuck it away in a drawer, in a file on your computer, wherever, and never check it again, then what good can it do? You’ll never stick to it a habit if you don’t make it a priority, just like you’ll never lose weight if you don’t make smart diet and exercise choices every day. 

So try this:  each and every night, spend up to 5 minutes getting your budget up to date for the day. Note any transactions you make that day, assign them accordingly, and remind yourself (out loud) that you’re doing good and to keep sticking to it!

Yes, I’m asking for 5 minutes of your night. That’s all it really takes to stay on top of things!

Put a post-it note on your bathroom mirror, set a reminder on your phone, do whatever you have to do to make your budget checkup a priority.

2. Stay the course.

It’s really easy to get discouraged and tempted to give up entirely if you had a bad spending week, went over-budget on an item, or had an unexpected bill come up and shrink your debt snowball payment.

But even more important than any of those negative hiccups is the fact that you care enough to be affected by them.

That means that you are determined to succeed – to make your money work for you and see your goals happen.

Print out pictures of your dreams (like a farm, a car, a big house, whatever they may be) and tape them up on a dream board that you look at every day to stay motivated. Use screenshots and create an album in your phone photos if that’s more your style.

Whatever you do, constantly remind yourself why you’re doing this budget and why you’re happy to have a little discomfort now for a massively brighter future just a little way down the road.

3. Give yourself grace.

Right along with fighting hard to stay the course, is acknowledging and accepting the fact that you are human, and humans can make mistakes.

Your spending won’t be perfect, at least at first, your budget may need to be tweaked after a few months, or you might plain have some bad luck come your way that almost feels like you need a total reset.

And all of that is totally ok. 

You will see it through and get your finances where you want them to be.

You will see your dreams come true.

And someday you will look back on it all and see how far you’ve come, and wonder if it’s possible to be any happier than you are at that very moment.

What budgeting is all about

At this point, you can already answer that for yourself.

It’s about financial freedom, having more money in your pocket, and relieving the stress of having debts on your shoulders.

But oh, it’s about SO much more than that.

It’s about feeling capable of making a significant change in your life, for the better.

It’s about having a say in how your life turns out.

It’s about making an active effort to simplify your life and see your dreams through to fruition.

It’s about living your better days, today, instead of sitting around and waiting for them to happen on their own.

It’s about four simple little steps that will get you started today, but serve you for a lifetime – a mindset shift, a system, a routine, and a determination to succeed.

That’s really all it takes to win with anything you want in life, not just your budget.

Your budget serves as a practical tool to get those steps ironed out and running smoothly. But it’s up to you to apply them to the rest of your dreams.

What big dreams are you going to tackle today?

I’d love to hear about your budgeting journey, be it towards debt freedom, complete financial independence, or simply saving up for your next car! Leave a comment below to share your story, so we can all encourage each other!

Join the village for even more encouragement as you work hard to make your dreams happen! Find us in the private Facebook group, For Another Time Village!