Why Your Budget Keeps Failing, According To A Financial Planner

As the holidays draw near, many people are feeling a strain on their wallets. Extra spending on gifts, decor, travel, and more can drain finances in the blink of an eye. But even factoring holiday spending out of the equation, creating and more importantly, sticking to a budget year round is no easy task.

While there are many tips and tricks out there to successfully keeping daily spend in check, sometimes it’s just as helpful to take a step back and look at where the process might not be as strong.

Turning to the experts, a professional financial planner shared the top reasons why his clients fail to keep their budgets. Spoiler: you’re likely guilty of a little of all three.

Budgeting Is Demanding

Malik S. Lee, financial expert and founder of Felton & Peel Wealth Management, recently spoke to Business Insider about budgeting.

“One of the most important parts of maintaining financial wellness is controlling your budget,” Lee began. “Although it may sound simple, maintaining a budget is not an easy task—physically or psychologically.”

Physically, money can be at times be scarce and life doesn’t always stick to your budget. Between unplanned expenses, like a costly car repair, to rising costs, this can make the the situation all the more difficult.

Psychologically, saving money is difficult for similar reasons. Mental health is closely linked to how we spend our money. Avoiding that fact can set us up for failure and, surprise, worse mental health.

Lee’s job is to help others manage their finances. Throughout his career, he’s seen three common budgetary pitfalls. Luckily, he’s also found solutions to all of them.

Problem 1: Out Of Control Discretionary Spending

Investopedia defines discretionary expenses as costs a household can survive without. Also called non-essential spending, this category includes eating out, entertainment, vacation, gifts, and hobbies.

These expenses are often relatively small. Consequently, it can be easy to overlook just how much we spend on them each month.

For example, a $6 cup of coffee on the way to work sounds okay. But at the end of the month, those daily trips to Starbucks could set you back $120 or more.

Solution 1: 50-30-20 Rule

Lee suggests using the 50-30-20 rule to get a handle on non-essential spending. With this rule, 50% of your net income goes toward essential costs. This includes utilities, housing, and groceries.

The next 30% of your net income can then go toward discretionary spending. The remaining 20% is reserved for savings, like emergency funds, 401k contributions, and 529 plans.

Lee also recommends constructing your budget in a way that starts with savings first, then housing, then transportation.

“By employing this top-down approach, you ensure that you pay yourself first and then attack two of the largest budget categories,” he explained.

Woman with blue wallet full of money — (Africa Studio/Shutterstock.com)

Problem 2: The ‘Lifestyle Creep’

Accountant Thomas C. Corley defined lifestyle creep as increasing your standard of living to match your increased income.

In a lifestyle creep, your monthly expenses increase at the same rate as your income. As a result, you notice no difference in the amount you can save—only the amount you spend.

Lifestyle creeps can look like buying a new house or car with a pay raise. Or, it could be as simple as increasing the number of times you go out to eat per month.

Solution 2: Conduct Budgetary Reviews Bi-Annually

It’s called a lifestyle creep, not a lifestyle sprint. As such, the only way to see if your monthly habits have changed is to review your spending over a large period.

“By conducting reviews of your budget at least bi-annually, you can ensure that you are paying optimal prices, monitor inflation, and temper any temptation,” Lee suggested.

“While I am a firm believer in enjoying the fruits of your labor, I will caution you to do so in moderation,” he warned. This brings us to our final, most common budgetary failure.

Problem 3: Too Much Impulse Spending

A recent survey found that the average American will make 12 impulse purchases a year. However, I think this data is likely on the conservative side.

Many people succumb to impulse purchases not in spite of their financial situation but because of it. “Impulse spending offers a sweet hit of dopamine,” Lee explained, “which might soothe [financial] stress.”

This makes people living paycheck to paycheck especially prone to impulse buys. Add in the stress of a global pandemic and generally poor mental health, and it’s no wonder that Americans are turning to retail therapy.

Solution 3: Waiting Periods, Financial Apps, And Staying Offline

Lee offered several solutions to this tricky issue. Waiting periods for non-essential buys, anywhere from 48 hours to a week, can help save money in the long run.

Financial apps like Mint and You Need A Budget are also useful for reminding yourself of short- and long-term goals. Keeping track of where your money should (and shouldn’t) go can ward off strong impulses to spend.

Finally, Lee recommends avoiding online shopping. It’s convenient but dangerous. Sure, you can buy things with the click of a button. You can also drain your bank account in the same way.

Buying non-essentials at a brick-and-mortar store can keep you more in tune with how much money you’re spending.

And when you know how much you spend, you can get a better grip on how much you save.