Budgeting has real benefits, but you might not fully experience it if you don’t protect your ability to follow it. You might think a budget is pointless because every time you create one, you never follow through. Sometimes expenses come and derail the whole thing. Understand that, like any plan, a budget must be accompanied by action, flexibility, reviews, and adjustments.
These guardrails prevent you from going off course. They nudge you towards following the plan. There are common mistakes that may make it hard for anyone to stick to a budget. Sometimes this can be caused by impulsive spending, addictive behaviour like gambling, inertia, indulgence in entertainment, laziness, oversight, neglect. And simply not following the budget as you spend. In this post, we will be exploring some of the guardrails that protect your budget and actually encourage you to follow it.
Create A Good Budget
A budget is a plan for how you will spend your money that month. Sometimes, the reason you can’t stick to your budget is that you created a bad plan. If you fail to make certain considerations while creating your budget, when it meets real-life usage, the budget will fail. A great budget is realistic, covers common loopholes, and actually matches your long-term financial goals.
If you don’t know where to start from, read: how to build a budget you will actually stick to.
Margin of Safety (MoS)
In my experience, one of the biggest reasons budgets fail is that unforeseen tiny expenses can blindside you. They can destabilise a budget so badly that it knocks the wind out of you and just blows up the carefully constructed budget.
When budgeting, you must have a margin of safety fund. This fund is money you earmarked for miscellaneous spending that you cannot see coming. For instance, if you are craving Jollof rice and you want to buy a plate, you can take that money out of your margin of safety fund instead of dipping into your savings. Think of it as spending money.
A common mistake while building a budget is that people tend to leave behind a very tiny spending amount. But it is important to leave behind an adequate amount to weather the invisible short-term spending that is coming ahead.
Sometimes, no matter how much you set aside in your margin of safety, some expenses are just going to wipe you out. That is not a failure of budgeting. This is where your emergency fund comes in, not to be confused with your savings. If you have not started building an emergency fund, start now. Think of your margin of safety fund as a financial layer of protection that prevents you from dipping into your emergency fund and your savings unnecessarily.
Create a balance for your MoS; it should be solid enough to meet your miscellaneous spending needs for the month but not so large that it allows for unbridled spending. Once you notice unbridled spending, it’s time to rethink funneling the excess to your savings and investments
Not all Extra Spending is Necessary
A lot of times, extra spending that was not part of the original budget is not necessary. Especially when your MoS can’t cover it comfortably. When you catch yourself about to do this, ask: Can I live without it this month? If no, then look in your actual budget for items to cut that replace that new spending.
When you have budgeted an amount for a particular category, whenever that money runs out for the category, think twice before you spend on that category again.
For instance, if you budgeted ₦40,000 for fun spending, and you exhausted your allocation, don’t shell out money for tickets to a new fun event that month again. Just don’t. Trust the plan you made. Trust the self that created the plan. Sticking to your plan is what keeps the plan going. The minute you start going off script, it’s a slippery slope.
The Cheese-less Pizza
One night I had ₦10,000 left in my MoS fund, and it was the 21st of the month. I was craving pizza that night; I had pizza dough, pizza sauce, frozen veggies, and shredded chicken all in my deep freezer. The only thing I didn’t have was cheese.
I considered buying cheese for a second, but cheese was like 8k, and a cheaper version was 4000. Now, I could have dipped into my emergency fund or savings to pay for that cheese or even just used the 10k I had left from the budget, but I asked myself, is cheese an essential item or just something I wanted ( a non-essential)?
I remembered negotiating with myself that cheese was an essential part of pizza, but the reality was that pizza could still taste good without cheese. I could have bought the cheese and had 2k left in my Mos fund, but I prioritized discipline by following my budget to a tee. Ended up making pizza without cheese, and it still tasted delicious.
That discipline protected my savings from irrelevant expenses. I kept my 10k for any essential expenses that might pop up for the ten days left in that month. Now, if I had an essential expense come up, like a health issue where I had to pay for drugs, I would not have hesitated to spend what I had left. Letting your budget guide you means restricting any extra spending outside the budget plan to essentials only.
Keep a Running List of All Upcoming Expenses.
Forgetfulness is another big thing that derails budgets. You could have the perfect budget, but if you forget to factor in an essential item and suddenly remember mid-month, it could destabilize you and put you in panic mode. Especially if the forgotten expense is expensive or urgent. You could be forced to dip into savings or cut other essential expenses.
This is extra annoying because you might have prioritized other non-essential items that month because you thought you had extra money to spare. Fixed expenses like utilities and feeding are easy to remember. Where people stumble is the Irregular expenses that come up every 2, 4, or 7 months.
A great example is rent. Because it’s yearly, people underestimate that they need to start saving for it immediately. Break it up into monthly portions and save monthly. For the unprepared, once the rent is due, they panic because they don’t have the money. There are so many other examples of regular and irregular expenses that might come up: birthday gifts for friends, wedding expenses for friends, school fees, lesson fees, security fees, gym membership, online subscriptions, skin care products, regular car maintenance, etc.
To mitigate this, always keep a running list of all irregular expenses you can think of in one place for the year. Also, keep a running list, preferably on your phone, of upcoming expenses for the next month.
As soon as you remember any, add it to the list. That will go a long way in giving you data month in, month out that helps you budget with more preparedness, so you don’t get blindsided.
Create a Buffer.
Buffers are things that reduce shocks to a system. In this context, budgeting is a system to control your spending. So, to reduce shocks, when budgeting amounts for spending categories whose latest price you are unsure of, add a bit of extra money to account for slight price increases or additional quantities you might deem necessary at the point of payment.
For example, if yams cost ₦4000, 6 months ago when you last bought them, this month, you could add a buffer of ₦500 – ₦1,000 while planning. This makes your budget resilient.
Cut Aggressively.
A lot of budgeting problems can be solved by simply prioritizing the most important things. People can be stubborn about this because they don’t want to cut money for things like entertainment, outings, take-out, etc to make room for more essential expenses that they need their money to cover. It’s a prioritization issue.
Some people know deep down that if they were to cut out certain items from their budget, they would comfortably meet most of their essential needs, their saving goals, and even their long-term plans. But they worry about life being dull without spending so much on excess food and fun.
That’s valid, but keep in mind that the peace of mind that comes from paying for utilities, meeting your life goals, and making rent in six months will always trump the ephemeral gratification you might get from adding irrelevancies to your budget, at least until such a time when your income can comfortably cover it all.
Prioritize the most essential expenses in your life. Cut non-essentials aggressively when needed, and only if there’s money left, do you add the non-essentials.
Budget Before the Money Lands
When money enters most people’s accounts, they become excited. Adrenaline surges. They feel rich and start to act on impulse. If you’ve not drawn a plan for your money before it lands, you could get into trouble spending on things that catch your eye on impulse. Like that shoe a WhatsApp vendor posted earlier this morning.
Though it’s better than not budgeting at all, your judgment can be slightly clouded if you try to budget after money has landed in your account. Only because your projections can be derailed by the positive emotion of having the money at hand. You are not thinking very rationally anymore. When there is cash in our account, we tend to be more liberal in our planning than vice versa.
Increase your chances of emotion-free budgeting by planning before you get the credit alert.
For example, salary earners usually get paid between the 20th of the current month and the 1st of the new month; in this scenario, for best results, they should have drawn up their budget 2 or 3 days in advance before they’re paid. So that once the money lands, there is no ambiguity about what to do with it.
Bad spending thrives in that grey zone where you have money but don’t have a plan for it yet. The last thing you want to do is not have a budget during the I’m rich phase, where you are feeling pumped after getting paid.
Move Fast After Money Lands
When money lands, it acts like an evil spirit. You get a sense of abundance, and you are more inclined to spend more liberally. This is why it’s imperative to move fast. Pay for things as planned in your budget as early as the same day the money lands. Don’t give room for extra rumination. After 24-72 hours of your money landing, you should have paid for 80% of your budget items: foodstuffs, utilities, savings in a lockaway, and rent contributions for the month, among others.
Willpower is Finite
These prevent you from using willpower later in the month to resist spending on nonsense. Believe it or not, there’s only so much willpower a person can have. According to experiments by psychologists Roy Baumeister and colleagues, self-control is a muscle, and if you use it continuously, it gets tired. So, you can run out of willpower and end up defaulting to your base instinct: spending on junk.
You should be focused on designing an environment that does not rely on willpower in a way that your goals are automatically met. Let me give you an example. When I struggled with social media use because it was very addictive and disrupting my sleep and productivity, instead of trying so hard to use my willpower to manage my social media use, I paid for an app blocker on my phone and laptop to block social media access. Ta-da! Problem gone. Now, I don’t have to think so much about it anymore because the work is done for me by an app that I can’t control or override.
Takeaway: Pay for most of your essentials within the first 72 hours of receiving your money. An idle sum is the overspenders’ playground. Start disbursing that money immediately on all the items you need to buy so that there’s nothing left to overspend with after you secure your survival for the month.
Automate
Automate as much as you can. Bank apps these days now have features where you can automatically send out money and even pay bills. There are apps for automating the buying of data and electricity bills. For recurring expenses like foodstuffs, if you have a trusted vendor that you buy from, you can automate sending them money and saying, I’m coming to your store to pick up what I need. This removes willpower from the equation.
Adjust Your Budget
When it’s time to spend, a budget item may cost more than estimated, a large emergency can throw off your budget, or you might have forgotten to factor in an important expense. A sudden increase in fuel prices, for example, can cause a spike in the cost of almost everything else. When things like these happen, they destabilize the rest of your budget.
You can’t just ignore reality and say, I should have enough money left, or worse, throw out the rest of the budget and try to wing it. You need to go back to the drawing board and redraw the budget for the rest of the money you have left. This sounds like a lot of work, but that’s the only way to see the reality of what the rest of your money can do for you. Create a new plan and prioritize.
Cut off some budget items if you have to, starting from the non-essential to the most essential items. Otherwise, if you decide to throw in the towel and ignore your budget, you are going to end up spending the rest of the money haphazardly in a way that doesn’t honor your goals.
Don’t see going back to the drawing board as a failure; sometimes the best plans don’t always go according to plan.
Leave No Fund Behind
Do not leave any money unplanned for. If you can’t find a good use for it, that might be a sign that you need to increase your savings rate. Funnel it into your savings, emergency fund, and investments, or mark it as your margin of safety fund for that month. The total amount for your budget should add up to the amount you started planning with.
This is important because unallocated money attracts suggestions and impulses, like Instagram ads, WhatsApp vendors, splurging, etc. Impulses are what we are trying to keep in check. Unallocated surplus funds can erode your discipline and make your budget have less authority over time because your psyche starts treating that unallocated fund as a backup if you misspend your actual allocated funds.
Budgets work because they create and add separation between different categories like food, money, transport, savings, and so on. That unallocated fund is a hanging loose thread that can blur the lines. Don’t leave anything hanging loose for the best results.
Separate The Funds, Literally
For people struggling with overspending in one area and neglecting others, you can create a separate bank account for different categories of spending, like the essentials, the non-essentials, or whichever suits your fancy, like the fixed expenses, non-fixed expenses, your savings, future growth, black tax, and your lifestyle expenses. That way, you have a separation of concerns.
You can easily see where the money goes and monitor when it gets depleted. E.g., Fidelity Bank for your essential expenses, FCMB for non-essential expenses, savings in an MMF, and fun money in UBA. For all of your bank accounts, you could label them for different uses so that once that money gets exhausted, you can say, I’m done spending in this category this month. Once money allocated for black tax/generosity is exhausted, for instance, no more loans and gifts to people for that month.
You could also try the old school envelope-based method, where you use physical envelopes to separate the cash for each category. That way, there is a mental separation of funds.
All In All
Creating a budget is great on paper, but in the real world, it’s not always enough. You’ll be faced with constraints that threaten your ability to faithfully follow your budget. Constraints like inflation, temptations, emergencies, and bills you forget to plan for, among others. Following the guidelines we explored in this post is a great first step to keeping the vision you had while planning your budget.
Budgeting isn’t about being strict. It’s about building systems that protect your intentions when life, emotions, and inflation try to knock you off courOf course, as time goes on and you create more budgets, you will get better at it and even discover better methods tailored to your personality that help you stick to your budget.