How to Bust-Proof Your Budget


*The author of this post is Kristin Wong.*

Imagine this scenario.

You’ve got hefty goals for your financial future, so you create a budget that’s as restrictive as possible. Your only expenses are absolute needs: rent and Ramen noodles. The numbers have been crunched. Your mind is made up. You will live bare bones, using the rest of your earnings toward your money goals.

But, after a few days, you have a realization: man cannot live on Ramen alone. Well, at least not a modern man like you, who’s had all sorts of gastronomical experiences, including truffle fries. Mmmm, truffle fries. You miss truffle fries. You head to your local pub and order a big ol’ batch of them.

Bam–your budget has been busted.

Or, imagine this. You’ve created a realistically balanced budget. You live well, but you save well, too. You know where all of your money goes, and you sock away a sufficient amount toward your goals.

Only you forgot to consider your irregular expenses. An unexpected auto-payment for $350 posts to your account–your insurance premium. Yep, your budget has been busted.

Unfortunately, I’ve experienced both of these scenarios. In fact, I made a handful of blunders before I learned how to budget effectively. Here are some common budgeting mistakes. Avoid these, and you’ll have a budget that’s tough to bust.

Budget According to Your Goals

It sounds obvious, I know. If you’re reading this article, you probably already know a thing or two about personal finance. But when I have money conversations with friends, they sometimes don’t know where to start with a budget:

“I know I need to create a budget and stick to it,” a friend told me recently. “But I have all these debts. How do I create categories for my money when I’m in the negative?”

I’ve been there. For me, it was simple: create goals first, then budget based on those goals. These were my goals when I was paying off my debt:

1.    Save for an emergency
2.    Pay off my small credit card debt
3.    Pay off my larger credit card debt
4.    Pay off my student loan

With those in mind, budgeting came easy. I budgeted for my needs first. The remainder of my income could then be used for goals and wants. I allocated according to my goals, while still budgeting for wants.

If you’ve heard the term “pay yourself first,” this is pretty much the same concept. Again, obvious for some. For budgeting noobs, however, I think it helps to know that financial goals give your budget direction.

It’s easy to bust a budget that doesn’t seem to have a purpose.

Budget Realistically

Some people live beyond their means; I saved beyond mine. Two years out of college, I found a great job with a healthy income, especially for a 24-year-old. My pupils turned into dollar signs. I paid off my debt, and then I fantasized about just how much money I could save. I got greedy. With each paycheck, I automatically transferred a ridiculously high amount into my savings account.

I envisioned myself diving into a huge pile of money, a la the intro to Duck Tales (a-oo-oo!).

After those automatic transfers went through, I’d have something like, $1.46 left in my checking account. That’s dangerous territory–at that point, even a pack of gum can set you back. And that’s just what happened. I forgot about my low balance and bought a pack of gum. In a duck blur, I was hit with an overdraft fee.

I’m embarrassed to admit that this happened a few times before I learned to budget based on reality. But eventually, I learned that, while my income was healthy, I also wasn’t Bill Gates.

Put the ‘Budge’ in Budget

Making an impossibly restrictive budget is a common mistake. You’re determined to achieve your financial goals, so you create a budget that’s tighter than a clam’s butt, giving yourself no room for fun.

It’s important to allow some breathing room in your budget. Eventually, your willpower will bottom out. We all have that little consumer inside of us that whispers: “Want. Want. Gimme. Gimme.

It’s easier to shut that little guy up when he (or she) knows there’s some gratification coming. Without that, you risk your inner consumer rebelling against your rules and completely blowing your budget.

Basically, a planned splurge can stave off an unexpected, over-the-top shopping spree. So, if possible, try to give your budget some room for fun.

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Identify Your Problem Areas

If you have problem spending areas, identifying them is key to protecting your budget.

Chances are, you already have an idea of what your problem areas are. But it helps to really dissect your expenses–down to the penny. Know where all of your money goes. Problem areas aren’t always obvious, large amounts of money that get spent at a specific store. Sometimes, problem areas are little expenses that add up.

The key here is to simply be more mindful about how you spend. When you know where your money is going, you have the power to decide whether the expense is worth it or not. If it’s not, then it’s a problem area. And problem areas can bust your budget. Identify them so you can avoid them and spend more mindfully.

Think Beyond Monthly

Most people budget monthly, but it’s important to remember all of your irregular, quarterly or annual expenses when you budget, too. Insurance premiums, for example. Or annual memberships.

Budgets tend to get busted around the holidays because people forget to save for the expenses that come around that time of year. Despite a working knowledge of the Gregorian calendar, we’re still taken by surprise, and so are our finances.

By thinking beyond monthly, you can protect your budget from these “unexpected” expenses.

Have an Emergency Fund

A personal finance article discussing emergency funds? How original, I know.

But there’s a reason emergency funds are emphasized so much: they’re crucial to a healthy financial plan.

You can create a balanced, realistic budget that takes all of the above into consideration. But if you don’t have an emergency fund, one little setback can unravel the whole thing.

Learn from Your Mistakes

Finally, I won’t pretend to have all of the answers. Sure, I’ve learned a lot from reporting on and writing about money, but a lot of my experience with personal finance, as a whole, simply comes from my own mistakes.

Personal finance is, well, personal. Your situation is unique to you. So, despite these tips, you might still make a budgeting mistake. All hope is not lost.

Many people become frustrated with their money mistakes and give up altogether. But I’ve learned that it’s much more productive to allow yourself to be human and learn from your mistakes.

But learn from mine first.

Kristin Wong is a writer who frequently blogs about personal finance, especially at her own frugal living blog, Brokepedia.

Image Credit: Thomas Hawk

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  • Meghan

    The “busted budget” sounds very familiar, but luckily, as Kristen writes, there are ways to move beyond that. Great post! I’ve found this site’s input so helpful I included it as a resource in my latest blog post about spending habits here: Looking forward to reading more!

    • Glad you liked the post, Meghan! And thanks for including us in your own blog post. Much appreciated!

    • Thanks, Meghan! I’ve really enjoyed this site, too, so it was a pleasure to write for them. I’m glad you found the post helpful.