My story is probably similar to yours: I didn’t create my first budget until I was 22 years old and halfway through college. I always knew I had to make one, but the process seemed overwhelming and I didn’t know how to even start. I knew I was spending more than I was making, but I didn’t have the discipline to stop, or the energy to figure out a way to make my situation better. So I kept chugging along, going deeper and deeper into debt.
During my last year of college, when I knew graduation and “real life” were just around the corner, I tried to create a student budget that I thought was realistic – but it failed. I’d get frustrated with myself, adjust the numbers, and fail over and over again. After a few months, I gave up. I ignored my bank statements and didn’t try budgeting again until I graduated with over $20,000 in debt.
When I look back at why my budget kept failing, I realized it was for four specific reasons:
No knowledge of past spending habits
It’s pretty hard to create a realistic budget if you don’t have anything to measure your numbers against. If you’ve got no clue about how much you spent on restaurants or entertainment last month, how will you be able to spend less next month? It seems like common sense to me now, but back then, I didn’t have a clue.
The basics of budgeting begins with figuring out how much money you will have for the month (your income), dividing it up based on what you want to do with it, then tracking where your money actually goes.
A budget is supposed to provide guidelines and goals to strive for, and when you’re accurately recording your spending habits – whether it’s in a simple spreadsheet, or with budgeting tools like Mint or Quicken – the numbers don’t lie.
I had never saved receipts before, or recorded my spending habits, so when I went to build my budget, I started arbitrarily plugging numbers into the spreadsheet that sounded reasonable to me. I had no idea that the $100 I thought I spent on groceries each month was actually closer to $250. And the $20 I thought I spent at Starbucks?Well, that number was actually closer to $50.
No defined goals
Most people budget because they want to achieve a financial milestone – like paying down their debt faster, saving for a down payment, or making a big purchase. While these are great goals to have, they aren’t specific enough to be truly motivating. Sure, I’d love to pay down debt and get ahead, but what do you actually need to do in order to achieve those goals?
For example, instead of creating a specific goal like, “I want to save an extra $100 per month to put into an Emergency Fund,” or “I need to pay down my debt by $300 each month,” I just knew I wanted to stop going further into debt, and didn’t take it any deeper than that. So without defining a way to get me there, I ended up lost. And my goal of stabilizing my debt (while I was still in school) remained a distant dream.
Quitting too soon
I stopped using my budget midway through my third month. I spent weeks creating a budget and kept track of the money coming in and going out of my bank account. But I was always going over my budget, and constantly spending more than I was making. It was frustrating not being able to see results, so I took the easy way out – I quit.
However, budgeting – much like exercising – takes time to see real results, and I was too impatient. I wanted to see immediate, concrete evidence that my efforts were paying off. For some reason, I had it in my head that I could eliminate my debt just as easily as I accumulated it. :) But at that point, I hadn’t even figured out how much my average income was each month. And I also hadn’t taken the time to identify what areas I was constantly going over on my budget. If I had just taken an extra step or two to average out my numbers and figure out a way to decrease my spending in the categories I was constantly going over, I likely would have seen improvement over the following few months.
Related: How much is your car costing you?
Not realizing what a budget is meant to do
I saw budgeting as a restriction; a way to stop me from having fun. I knew I had to do it, but I wasn’t happy about it, and because of that, I had a really bad attitude.
I didn’t understand that the purpose of budgeting was to help me manage my money so that I could have even more fun with my life. And once I realized that my debt (and my unsustainable lifestyle) was going to always hold me back from achieving the goals that I wanted for myself (like home ownership, travel, and potentially starting a family), it finally clicked. A budget wasn’t about deprivation, it was about empowerment! By choosing where my money went, and living below my means, I was creating a better future for myself.