Why Budgeting Doesn't Work (and What To Do Instead)

You've made the commitment to yourself that this is the year you're going to do it: you're going to take control of your personal finances. Maybe you've become overwhelmed by day-to-day expenditures and find that you never know where your money is going, or you just want to get a head start on preparing for the future.

Whatever your motivation, you arrive at the traditional solution to all of your money woes: budgeting.

You don't know where to begin so you decide to follow a few guides, blogs, and videos and begin building your budget. You list all of your expenses, set strict spending limits ("I won't spend more than $200 on clothing this month... 🤞") , and start to feel optimistic about the new direction you've taken on your personal finance journey.

But then, as always seems to happen, unexpected expenses pop up ("I didn't think I'd be dealing with fixing a cracked phone screen..."), something catches your eye in the grocery store and you overspend a little on food for the month, or your bestie invites you and your friends out for a surprise celebration dinner for their new work promotion. Suddenly, that carefully crafted budget falls by the wayside. Frustration sets in, and you give up on the budget entirely.

Sound familiar? Budgeting may be considered the traditional solution, but it's not the only approach, and far from the only answer to getting your finances in order.

Why Budgeting Often Fails

There are many reasons that budgets fail, but here are the most common:

• Too Restrictive: Budgets often come with rigid spending limits. This strictness can make people feel deprived, which leads to frustration. The more you tell yourself you can't spend money on something, the more tempting it becomes, leading to splurges and guilt. Budgets also lack the flexibility to grow and adapt with your habits and circumstances. Not every month is going to have the same expenditure for the same category, and that's ok.
• Difficult to Maintain: Traditional budgets require a lot of tracking and maintenance. It can be challenging to account for every dollar spent, especially if you have irregular income or expenses that vary from month to month. The constant need for adjustments can feel like a never-ending task. When major life events or income changes come along, these require budget updates, which people often neglect to do.
• Insufficient tracking: it can be difficult to track spending to ensure that what they're spending on stays within budget. Our personal finance app can help with this (more info below).
• Unrealistic Expectations: Many budgets are created with the best intentions but fail to account for real-life situations. People often feel overly optimistic about their budget, trying to drastically cut spending in certain categories without considering their actual habits and needs.
• Unexpected Expenses: Failing to account for unexpected expenses or emergencies in the budget can quickly derail it when these inevitably occur. Unexpected expenses, special occasions, social events, or simply the desire to treat yourself can easily throw a budget off track. When these moments occur, people often feel like they’ve failed, which leads them to abandon budgeting altogether.
• Focus on Limitation Rather Than Intention: Budgets emphasize limiting spending rather than aligning spending with values. This can make managing money feel like a chore rather than a way to achieve what truly matters to you.
• Not aligning with goals: Budgets that don't reflect a person's true priorities and financial goals are less likely to be followed.
  

What can be done instead?

Instead of relying on a traditional budget, consider developing a spending plan. A spending plan is a more flexible approach to managing your money. It focuses on allocating your income according to your priorities and values, making it easier to stick to because it’s tailored to your unique lifestyle and goals.

What is a Spending Plan?

A spending plan is a proactive approach to managing your money. Unlike a strict budget, it gives you the freedom to decide how you want to spend your income based on what matters most to you. It’s less about limitations and more about intentional choices. The goal is to ensure that your spending aligns with your values and financial goals without making you feel deprived.

How does a Spending Plan compare to a Budget?

A spending plan and a budget both aim to help you manage your money, but they differ in their approach:

Budget: Typically rigid, with fixed categories and strict spending limits. It emphasizes control and restriction.

Spending Plan: Flexible and focused on aligning spending with your priorities. It emphasizes mindful spending and adapting to changing circumstances.

Key Benefits of a Spending Plan

Flexibility: A spending plan allows you to adjust your spending categories as needed. If your grocery bill is higher one month, you can adjust other categories without feeling like you’ve broken your budget.

Focus on Priorities: A spending plan helps you focus on what’s important to you. Instead of feeling guilty about spending money, you can allocate your resources towards the things that bring you joy and move you closer to your goals.

Less Stress, More Control: By focusing on how you want to use your money rather than what you shouldn’t spend, a spending plan reduces the stress associated with strict budgeting. It empowers you to take control of your finances without the pressure of perfection.

How to Create a Spending Plan

1) Identify Your Income: Determine your total monthly income, including all sources. If your income varies, consider using an average.

2) List Your Priorities: Write down your financial priorities. This could be anything from paying rent, saving for an emergency fund, or setting aside money for a hobby you love.

3) Allocate Your Income: Assign a portion of your income to each priority. Start with essentials like housing, food, and utilities, then allocate towards savings and discretionary spending. The key is to make sure your spending reflects your values.

4) Track and Adjust: Keep an eye on your spending and adjust as needed. Unlike a rigid budget, a spending plan is meant to be flexible. If something changes, it’s okay to reallocate funds to better fit your needs.

Final Thoughts

Budgeting doesn’t work for everyone, and that’s okay. If you’ve tried budgeting and found it too restrictive or difficult to maintain, a spending plan might be the better option for you. By focusing on your financial priorities and aligning your spending with your values, a spending plan helps you take control of your money in a way that feels empowering rather than limiting.