How to Find and Fix the Leaks in your Budget
A budget is an excellent way to manage and maintain your money.
However, even a well-planned budget doesn’t always work the way it should. After a few months, you might discover that you’re still struggling to make ends meet, even though should be getting by on your income with relative ease.
If that sounds familiar to you, the problem is probably with “leaks” in your budget. Leaks are spending areas that you haven’t accounted for in your financial strategy. It could be a newspaper that you buy each morning and forget about, or an extra transaction fee included when you send a repayment to a company for your loan.
Here’s how you can find and fix the leaks in your budget.
1. Start Tracking your Spending
The idea of tracking every penny that you spend can be exhausting to some, but it’s the only real way to make sure that you know where your money is going. To begin with, write down everything you spend over a monthly period. If you’re comfortable with technology, there are plenty of apps and software tools that you can use to help you with this.
This will give you an insight into where you’ve spent the most in the last month. What’s more, you’ll also be able to see whether your actual spending habits align with the projections you made when you established your budget.
2. Analyse Areas of Overspending
Compare the amount you’re spending each month to the amount that you budgeted for that category. If you have significant discrepancies, then you’ve probably already found the source of your budget leak. The next step is to figure out why you’re overspending. Where you unrealistic when you set your targets in the first place? Or is there something that you’re paying for now that you forgot to include when you built your budget.
For instance, if you took out a loan with lower interest fees, but you needed to pay for legal costs the first month you borrowed the money, then you might have a temporary discrepancy in your spending that should resolve itself again next month.
3. Look for Ways to Stop the Leak
Once you know why you’re over-spending in a certain area, you can look for ways to fix the leak. If the problem is temporary, then the best thing you can do is to pay for the extra expense out of your savings and repay yourself in the future when your spending gets back on track. However, you don’t want to keep dipping into your savings every month.
The methods you employ to fix your budgetary leak will depend on the category of spending that has the biggest problems. For instance, you can’t just cut down the amount you spend on your mortgage each month. However, if you’re over-spending on food from the supermarket, then you could try switching away from name brands or looking for cheaper meals.
4. Find Sources of Extra Money Elsewhere
If the source of your budget leak is an area where you can’t cut back spending, then your only option will be to look for spare money elsewhere that you can use to plug the gap. For example, you might not be able to change the cost of your rent. However, if you can cancel your Netflix subscription, then you’ll have a little extra money that you can put into paying that fee each month.
Look for areas in the rest of your budget where you can cut back to deal with the leak. Remember, ideally, you shouldn’t be getting rid of everything you enjoy in your budget, as this makes it more likely that you’ll end up falling off the wagon. Instead, think about whether you can save cash by switching to a different utility provider, or buying a different brand of toothpaste. Every penny helps when it comes to making the most of your budget.
5. Commit to your New Strategy
After you’ve successfully found a way to plug all the leaks in your budget, the next step is to commit to your new strategy. Continue to track your spending and make sure that the plan that you have put in place works exactly as you thought it would. If you’re still struggling by the end of next month, you’ll need to go back to the drawing board and find out what’s going wrong.
If you notice any problem areas in your budget while you’re tracking your spending – like a temptation to impulse buy when you go shopping for food, make a note of these, and look for ways to protect yourself from them in the future. For instance, you could just take cash with you when you go food shopping, so you’re restricted to spending a specific amount.