When you turn on a financial television show, click on a financial website, or speak to a financial adviser, you’ll often hear about the importance of creating a budget, and sticking to one. And of course, they make it sound so easy. All you have to do are a few easy calculations, like allocating around 28% of your income to a housing payment (as if you didn’t already rent or purchase a home), spending no more than 10% on vehicles (too bad I just bought that Acura), and refraining from overspending. No big deal, right?
Although these percentages and formulas are helpful for some people, they do not answer some of the million dollar questions: “Why am I always running short every month?” and “Why can’t I stick to a budget?”
Even those who have inexpensive housing, transportation, and other recurring expenses relative to their income may have a hard time staying on financial track. As of earlier this year, at least 25 million middle class Americans were living paycheck to paycheck.
So, why can’t people stick to a budget each month?
1. There’s simply not enough money coming into the household
It’s expensive to run a household. According to 2013 estimates from the Economic Policy Institute (EPI), “The basic family budget for a two-parent, two-child family ranges from $48,166 (Marshall County, Miss.) to $94,676 (New York City). In the median family budget area, Topeka, Kan., a two-parent, two-child family needs $63,364 to secure an adequate but modest living standard.”
In the median family budget area, a family of four would need upwards of $10k more than the nationwide median household income to achieve a modest living standard. These findings are based on the EPI’s family budget calculator, which accounts for housing, food, transportation, child care, healthcare, taxes, and other necessities. When you add in luxuries like gadgets, vacations, and trips to the movies, then the budget is stretched even further.
2. Expenses are often higher than you think and something always comes up
Between taxes and tips, fees and interest, added costs are everywhere. The cable bill may have increased by $30 because the one year discount period just ended, or maybe the electric bill increased by $40 because it was exceptionally cold this month.
It’s easy to understate and underestimate when creating a budget. “I only have a $50 restaurant budget this month, so that’s how much I will allocate for myself — period.” Then, after you already spent your amount for the month, a friend calls and says everyone is going out to celebrate a mutual friend’s birthday at TGI Wednesday’s. Unless you skip the celebration, that’s another added cost onto your restaurant budget.
3. Your budget requires more attention than it’s receiving
According to Bankrate, the steps to creating a successful budget are:
- Track your monthly spending
- Make savings automatic (including retirement savings)
- Prioritize spending
- Use cash for daily spending (or a checking account)
- Tackle credit card debt
- Build an emergency savings account
- Live within your means
Bankrate published this list of steps back in 2007, and the advice still holds up today. The problem so many people have with following these steps is that each individual one requires effort, attention, and a degree of discipline.
A budget is also kind of like a diet, in that you can’t simply work hard at it for a few months and then go back to old habits. It requires a change in thinking — a change in lifestyle.
Those who are successful with their budgets are motivated, and they generally have a positive attitude about the idea of budgeting. They’re excited about it, and they take pride in meeting their financial goals each month. Those who stick to successful budgets also have realistic expectations without biting off more than they can chew or getting discouraged when things don’t go exactly as planned.