3 Simple Fixes for When You Break Your Household Budget
Americans have gotten a lot smarter at staying within their budgets lately: Levels of personal debt are at seven-year lows, according to the New York Federal Reserve. But even the most financially prepared households run into money troubles from time to time, and once you've been hit by one budget-buster, it can be easier fall victim to temptation and give up trying to keep control of your finances.
The smarter response, however, is to acknowledge that even the best-laid financial plans can go awry. With some simple fixes, you can get past a budget blowout and get your money management back on track. Here are three things to consider the next time you go over your budget.
1. Give Yourself a Buffer When You're Starting Out
Budgets are challenging not just because they force you to spend within your means but also because they make you identify the exact areas where your money goes every month. When you first start out budgeting, people often find that what they think they spend on certain categories is actually quite different from what they actually spend.
Until you get more familiar with your spending patterns, the simplest thing to do is to build in a buffer category in your budget that you can use for overspending. When you overspend in one category, simply transfer money from the buffer into that category. Each month, your estimates will get better, and eventually, you'll be able to reduce or phase out that extra category entirely. But even though it will mean less money specifically allotted to other needs at first, having that buffer category will save you from the much more difficult task of figuring out which more-specific spending categories have room for trimming.
2. Use Your Most Flexible Budget Categories to Bail Yourself Out.
Some budget categories are more flexible than others. For instance, most people have a fixed rental or mortgage payment, and there's nothing you can or should do when it comes to that budget line. Similarly, although regular bills like cellphone service and utility charges can vary slightly from month to month, as well as by larger amounts on a seasonal basis, you can generally make a pretty close guess based on past experience what those bills will be.
In areas like entertainment, eating out, and clothing, on other hand, you have plenty of latitude in deciding how much to spend in a given month. So if you go on a big splurge, then replacing a few restaurant meals with cooking at home, or seeing a movie instead of a more expensive concert or sporting event can help you get back in balance for the month.
3. Ask for Help Quickly
Many people panic if they get temporarily behind on their bills. But asking for a bit of forbearance from your creditors works more often than most people expect, and by doing so, you can often reprioritize your bills in a way that will put you back on course to full financial health with a lot less stress.
For instance, many people immediately leap for quick money sources like credit-card cash advances or payday loans whenever they get behind with a bill, incurring huge up-front fees and starting a high-interest clock that can be very hard to stop. Instead, try to negotiate with landlords, utilities, and other regular bills to see if they'll let you make a short-term payment plan that eases some of the pressure. If by doing so, you can avoid late fees and finance charges, you'll save yourself the added burden of figuring out how to cover those extra costs and get yourself back in shape a whole lot faster.
Don't Give Up!
Budgeting is hard to start and even harder to stick with, but the rewards of success will last a lifetime. Following these simple ideas can help you stay on target and reap all the benefits that consistent budgeting can offer.
You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.