How to overcome budgeting challenges
Do you struggle with budgeting? I’ve always been good with math and numbers. Yet, you can be good with numbers and still have trouble budgeting and spending too much.
In fact, your spending is tied to a belief you have about money, so in order to change your spending habits, you must also let go of the belief that you are bad with money. Figuring out your spending psychology will unlock the key to fixing budgeting errors. You can then realize you are a fierce budgeter and use your new budgeting skills to stay on top of your finances.
Therefore, this post will teach you how to overcome budgeting challenges by using small successful habits to train your brain to stop overspending and start building wealth.
Often we think of our brain as this complicated organ that controls the rest of our body. Yes, there are neurons and dendrite (but we won’t get into brain physiology too much in this post). Yet, the simple fact is that the human brain is wired to avoid pain and seek pleasure. By doing this we form “feedback loops” or more commonly known as habits that drive our patterns of everyday life, including our budgeting-or lack thereof. Why is this important? You are spending money to gain pleasure and avoid negative feelings brought on by not having enough.
Although this may avoid pain in the short-term, your long-term situation will feel differently.
When you open up your credit card bills, you will be in the pain state again. It is easy to throw the bills to the side and go buy something to make ourselves feel better. Yet, this is the exact feedback loop we are trying to break.
So the trick is to find a way to ensure pleasure with the feeling of saving money and increase pain with the feeling of overspending.
We are also going to try to replace our spending habits with something else, so we don’t’ fall back into that feedback loop.
Because the brain is constantly looking for patterns and consistency, it will try to automate what you are doing and continue to create those pathways that will eventually lead you on your way to success.
According to Psychology Today, it takes at least 66 days to form a habit.
So you will need to repeat these patterns for at least a few months to start really changing your brain and in turn, overcome your budgeting challenges.
Why not give it a try? What have you got to lose?
#1 Budgeting Challenge: Overspending
Overspending is a habit that can ruin your budget. Yet, changing this habit is not as hard as it may sound. You can change your spending habits by tracking your spending and determining how much you are going overboard. If you are spending more money than you are bringing in, you definitely need to real in your spending. You can change your habits by slowly cutting back and using frugal living tips to help save more money
Learn how to Trim Your Budget
Once you have tracked your spending, you have a visual of where your money is going. You can now begin to get rid of things you don’t need.
Are there subscriptions you have jotted down on your spending tracker that you really don’t use?
Do you have a gym membership, but haven’t gone to the gym in two years? These are items that can be cut from your budget without doing any harm. Nonetheless, your gym will still be there when you get your finances in order, or you may choose to do free or frugal workouts at home.
Ideas of things to cut:
- pricey coffee
- fast food
- going out to eat
- delivery fees
- clothing boxes
- weekend trips to the mall
Since we are trying to change spending habits, once you find things you can eliminate, you must replace them with something else. For example, if you love your weekend shopping trips and often spend $100 every weekend on clothing because you get to hang out with a friend, perhaps you can meet a friend for coffee and save yourself $95. Over time, you will realize it wasn’t the shopping you loved, it was spending time with your friend. Once you get your finances in order, you can plan some fun splurges into your budget, but you must get your budget under control before this happens.
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Ideas of replacement behaviors:
- coffee date
- meal planning with foods you love
- walking outside
- going to a park
- thrift shopping
#2 Budgeting Challenge: Budgets are too confining
One challenge I often hear about budgeting is that budgets are too confining. Of course, if you are used to spend as much as you want, without much thought, it could be part of the reason you are having trouble with budgeting or are seeking to change your financial habits.
If you feel like budgets are too confining, it is best to change this mindset. Start by looking over different types of budgeting, Did you know certain budgets allow you to spend freely after saving what is needed?
Here are some types of budgets to consider. Pick one that works best for you:
- 20/30/50 budget – In this budget type, you save 50% for needs, 30% on wants, and 20% on savings. If you think budgeting is too confining, this budget will work for you, because you are still able to spend 30% of your income freely.
- 80/20 budget- This type of budget is even less confining. As a rule of thumb, you will put 20% of your income toward savings, and spend 80%. Although this budget may work for some, it leaves a lot of wiggle room and would only work if you are able to track spending and avoid over-spending with financial discipline
- Traditional budget – In a traditional budget, you will write down your expenses and your take-home pay. You will use your expenses from the past year and your income, to predict how much you will need dot to pay your bills and save. You can budget for fun stuff such as entertainment and clothing.
- Zero-sum budget– In this type of budget, you will spend every dollar or assign each dollar a job of paying bills, saving, or spending. The goal is to account for every dollar so that it is not spent frivolously.
The key is to find a budget that works for you so you can overcome budgeting challenges.
#3 Budgeting Challenge: Tracking spending
By tracking your spending, you are giving yourself a clear vision of where your money is going. You will also see week spots where you are simply wasting money.
Once you have a clear view of how you spend, you can begin to change things for the better. One thing you will want to look at is your spending habits.
Ask yourself these budgeting questions:
- Am I overspending?
- Do I earn enough money?
- Can I pay my bills
- Is this a need or a want?
These questions will help you decide if your spending is working for you or if you need to change. Tweaking a few things in your spending can make world of difference over a month or a year.
For example, if you stop and buy a $4 coffee every morning on your way to work, you can make coffee at home instead and save $20 per week assuming you work five days. That is $80 per month or $960 per year. Just think how much you could earn on that extra $1000 if you invested it and left it for the next 30 years.
If you are overspending, consider changing your spending habits. Try to figure out why you are spending moeny on things you don’t really need.
Many use emotional spending to fill a void or spend because it is a habit and they can pay the bill later. Yet, if you are charging things up on a credit card and paying interest, you are paying more for everything you buy. It is best to find the root of spending and take steps to make a change.
Try using the 30-day rule before you buy something to see if the desire is still there after 30-day. If it is, this is something you really want and is not a frivolous purchase.
#4 Budgeting Challenge: No budget at all
Now that you know your spending pattern, you will need to set up a budget to keep track of how much money you have coming in and how much you have going out.
You will jot this down and then start tracking all of your expenses. This may seem daunting, but you are going to need to commit to doing this for at least 90 days to help you form a habit of tracking your spending.
If this doesn’t sound like your thing, you can also automate your tracking habits by using an app called Digit. Digit will help you see where you are spending and make sure you have enough to pay your bills. You will need to get in a habit of checking this daily, so you know where you’re financially speaking.
Use digit to keep track of all of your funds in one spot. Digit will help you stay on budget and reach your financial goals. Try it free and learn how to save at the touch of a finger.
Here are some budgeting categories to consider when writing down your monthly budget:
- school expenses
Make sure to add any need to your budget and subtract that amount from your monthly take-home income. Make sure you have enough to cover bills and needs before you ad the “fun stuff” into your budget. If you have the money and are able to save, then go ahead and treat yourself.
#5 Budgeting Challenge: Unexpected expenses
It is no doubt, unexpected expenses will come up. So it is best to be prepared for these types of things. You can do this by coming up with sinking funds for your money. You can create a rainy day fund and an emergency fund with your bank.
Most banks can easily set this up or you can do it yourself online.
What is the difference between a sinking fund and a rainy day fund?
A rainy day fund will be used for expenses you know are coming. Some examples are as follows:
- new roof
- car expenses
- water heater
- home repair
An emergency fund will be set up in case of a real emergency such as:
- job loss
- medical expense
- car accident
These are essential funds for any household and using both will give you financial security with less stress. When these bills come up, you will be prepared.
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#6 Budgeting Challenge: No money goals
Setting money goals is essential to get where you want to be in life. You must set money goals for the short term and long term. I suggest setting up monthly goals, yearly goals, and also a five-year plan of where you want to be financially speaking. You can use a savings tracker to help you meet your goals.
You can check out my savings tracker here and start planning your goals accordingly.
I suggest making some short-term and long-term money goals to help you plan ahead. Ask yourself where you want to be in five-years. This will give you a good idea of how you plan your short-term goals.
Think about the following finance questions:
- Do you want to buy a home?
- Do you need a new car?
- Do you like your job?
- Are you happy with your current money situation?
- Do you need to pay down debt?
- Are you ready to invest?
These are all good questions to consider when writing down your moeny goals. You can set goals for the following:
- monthly money goal
- one-year money goal
- three-year moeny goal
- five-year moeny goal.
Make sure to write down your money goal and check back frequently to see if you are making good progress. If you are not, you may need to adjust things and be realistic. If you are falling behind or in debt, consider a side-hustle until you are able to catch back up.
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#7 Budgeting Challenge: Investing
One aspect of budgeting that people sometimes never overcome is the fear of investing. When I was younger, I got some good advice. My co-workers told me to invest in a 403b at work and I listened. This account has made me over $100,000 over the years.
Yet if you are new to investing, I can understand why you are worried. You are afraid of losing money and I don’t blame you. Remember, the brain is wired to increase pleasure and avoid pain, so holding a fear of losing moeny keeps many away from the stock market, but this is a mistake because you will lose out if you don’t try it.
The stock market can be risky and people do lose money. Yet, if you know where to put your money, it is pretty safe. You can start small by investing in an app like Acorns. Acorns is a platform that allows you to invest your spare change (or more money if you wish) into funds. You can pick reputable mutual funds or index funds like Vanguard and watch your money grow.
This will give you more confidence in investing more money and it is easy, so why not try it. You have little to lose and a lot to gain. I don’t advise you to go crazy and start investing in a bunch of individual stocks you don’t know much about, but investing in these funds are safe because they are a combination of many companies together so the chances of you losing your money are pretty small and most are FDIC insured too.
Give Acorns a try and get your feet wet. You will soon realize this is a budget challenge worth taking on because you can take advantage of compound interest and make money.
Steps to overcome budgeting challenges by forming new habits:
If you have budgeting challenges this can put you into debt and decrease savings. Yet, if you learn how to overcome budgeting challenges, you can save money, get out of debt and learn how to achieve your money goals. Use the tips above to get started and everyday save more so get closer