Why Your Budget Needs a Major Overhaul or Just Minor Fixes

Budgeting has a black eye, plain and simple.

Some believe in it as a full-proof way to save, while others believe it is overrated and outdated.

So where do you stand on budgeting?

The fact remains is the financial situation in the United States would suggest we’re not doing a very good job of budgeting across the board, with most assuming and believing in the latter: it’s really not that affective.

This really isn’t an indication that budgeting isn’t effective but rather an inditement on poor financial planning.

The numbers, in that regard, don’t lie even if most assume budgeting isn’t all its cracked up to be.

Nearly two thirds of the population couldn’t come up with $1,000 if asked to, and 24 percent of Millennials (born between the years of 1981 and 1996), as an example, have what you would call financially literacy, which can be classified for this study as a basic money saving acumen.^[1]

This isn’t about picking on Millennials, either.

They’re the age group would be inching toward forward on the early end and right around the 22 years of age mark, where saving money becomes inherent and followed or forgotten.

The fact that saving $1,000 is so challenging would be a huge red flag of sorts that, while budgeting might be perceived as ineffective, it is very much needed across the board to save money properly.

Baby Boomers and Generation X members are not saving for retirement, an age group that is into their 40s and 50s. Neither of those two age demographics are making retirement a priority with 41 percent saying they’re just starting out of the Gen Xers group, and 42 percent of the Boomers.^[2]

Nearly 3 out of 5 Americans don’t currently carry an active budget, and even the ones who do are questionable at best as far as following it goes; the 41 percent mark is typically reported as the number of individuals who use a budget.^[3]

So, we can deduce from these two relatable studies that most don’t have a budget and ultimately, we can’t save money, either. You’d assume that something would have to give at some point, whether that’s struggling from one paycheck to the next or reassessing how you save, spend and your expenses versus income in order to reverse the “can’t save” trend sooner than later.

The real make or break moment, from a budgeting standpoint, really centers on not so much proclaiming that you have one but whether or not, as mentioned previously, you actually keep and follow it.

Case in point, an interesting study a few years ago, showed that of those responding that 82 percent of Americans say they “have” a budget. The key word “have” is highlighted because having something doesn’t mean we use it.

Remember that treadmill you bought in January; how’s that working out? You have it, but are you using it.

Budgeting is similar. That 82 percent who have a budget is correct, but 20 percent of that is admittedly keeping track of it in their head or without any structure.^[4]

While budgeting is hardly an enjoyable exercise for most, the fact remains that if we’re not saving money, struggling to retire and have credit card debt, something about the process is not right, and has gone awry in a way that can only suggest one of two things: you need to overhaul this process or, for some, a few adjustments here and there to make saving money more of a fixture in your day to day living.

Whether your charge is to trim a budget that is a little overweight or completely cut it and rework all of it to the point that it’s lean, mean and doing its job, you can adjust accordingly, and here’s how:

Major: Make sure your budget matches those who are saving

The ability to put together a budget isn’t a skill that alludes most due to not understanding the difference between expenses and income. Any time that argument is brought into question, it’s more about ignoring the latter in favor of the former.

Budgeting is more than just writing down what you spend money on but also has to be matched against what you’d considered averages on things you need or want, what makes the most sense versus your total income relative to what you should be paying (and what you are).

The reason most people overextend themselves as far as how much they spend on cars, homes, school loans, debt in general, etc. is mostly due to overspending to keep up with trends, friends or family, making sure they’re not missing out on anything.

So numbers like 33 percent of your gross income should be spent on housing for example, 17 percent on transportation and 13 percent on food each month are just a few statistics to consider when you’re looking at a budget that isn’t working at all.^[5]

Where the major, whole-sale changes come into play quite frankly are changing your housing considerations by moving or downsizing, same goes for the vehicle you’re driving or how much you’re spending on food, another cost that, at 13 percent, is usually much higher due to a lack of planning and a lot added to that figure due to eating out at restaurants.

The average household spends more than $3,000 dining out per year, a figure that certainly is going to skew a budget.^[6]

Statistics have shown that 5 percent of your average income goes toward dining out, and that typically isn’t accounted for on most budgets when you factor in that 13 percent number (5 percent representing nearly half of what you’re allotted).

If your budget doesn’t exist, you’ll want to use these barometers as a guide. If you have a budget that consists of $5,000 of gross income per month and your mortgage or rent is $2,500, that’s when you need to consider sweeping changes to how you’re spending, budgeting your income in totality.

Major change also comes in the form of credit cards, which you should be shredding if you’re overusing them or just giving yourself an allowance as far as how much you’re allowed to spend on a given item, like clothes for example. That money should be set aside and used and when it’s gone, you’re done buying.

The average household carries more than $15,000 of credit card debt.^[7]

If you’re part of this category, a major change that needs to be made is not only eliminating using them but coming up with a plan to pay them off faster to avoid interest charges. The inverted pyramid method is a workable solution, whereas you focus on the lowest balance, work to pay it off and then pay minimum on everything else. Once each smaller balances is paid off that money goes toward the next highest balance, while maintaining the minimums on everything else.

That eliminates debt and changes your budget to give it the overhaul it needs.

Minor: Shop around, price match and consistently adjust and review budget

When was the last time you shopped around for car insurance?

How about that price match on cable television, phone, internet service, cell phone bills or other expenses that are fixed costs that waiver between wants and needs, but always should be reviewed?

Do you consider alternatives to other products or services? Are you looking at small items or daily things you buy as budget busters?

So if you’re someone who has the major budgetary concerned under control as detailed earlier, perhaps your budget tweaks are just that: small changes that make a bigger difference than you’d imagine.

Your housing and car expenses are under control, as is your debt, which you’d classify as manageable but not great, but you’re still not able to save enough of your income.

The average person should be saving 20 percent of their income toward a savings account, which seems like a forgotten topic when you consider what the masses have been able to do, or not do in this case.^[8]

What needs to happen isn’t so much a moving sale or trading in your car, but more about taking a longer, harder look at your budget and determine what’s working, what isn’t, what can be altered.

The average cell phone bill is around $80 per month, but you can find ways to save more, for example, but adjusting who your carrier is, which company is offering the best deal and how switching can create an influx of “bidders” who want your business in a competitive marketplace.

A simple switch from AT&T to Cricket, which runs off the same network as AT&T, could save you $200 per year.^[9]

What typically prohibits us from changing our carrier, provider or just changing in general as far as how we spend our money is convenience. But isn’t switching cell phone providers or dumping cable television for streaming services worth the extra money in your pocket?

Often times, a savings shortcoming also can come from items being added to your budget that weren’t previously there, and you aren’t accounting for, whether it’s the inclusion of a new medical bill or just not tracking smaller, less consequential expenses (at least that’s how you see them).

Buying bottled water, cigarettes or lunch out every day might seem like business as usual (again, there’s that convenience factor) but those are adjustments to your budget that are small, truthfully in the bigger picture expense wise, but can’t be overlooked.

The average smoker can spend roughly $2,000 per year (at a pack per day) and that often is 25 percent of the total income on average.^[10]

Consider that kind of money involved, and not having it tracked budget wise. That $2,000 per year figure is $167 per month, so anyone looking for holes in their budget might want to check these sort of expenses, particularly if you’re just breaking even or only saving a modicum of what you make.

Finally, minor changes also settle on not ignoring month to month differences in how you spend. If it’s December, your budget isn’t going to be the same if it’s mid-September, for instance. Being able to adjust at the beginning of each month (which is when you should budget or re-budget) allows you to plan for events or times of the year when your money doesn’t go as far.

Budgeting is a unique endeavor in that people don’t necessarily dislike the idea of one, and in fact, most know that’s the best path of action: a simple way to track expenses and what you spend your money on versus income.

But budgeting has an exercise, going to the gym feel to it.

You know you have to, but few make it a priority or feel like it does a whole lot.

Both are the same in that you have to fine tune it, change what you’re doing and most importantly stay consistent. That consistently is going to lead to a windfall of change in the right direction, namely being able to have money leftover from paycheck to paycheck, and feel better about savings account balances and retirement.

With a reported 78 percent of full-time workers saying they live paycheck to paycheck as it stands now, the idea that a budget isn’t a necessity or, at the very least, on the docket of things to do is downright silly.^[11]

If you’re not fond of budgeting, keep it simple.

Determine if you’re consistently losing money, then sweeping changes may be in order, but if you’re in a fair position and want to take your budgeting past a point of stagnation, then a few minor moves might be the trick.

Either way, you need to get past budgeting’s bad name and start recalling the good things it can do.