The beginning of the year is the best time to review how we did against our budget in the previous year and to put together a budget for the current year.  Unfortunately, many times what we find is that we blew our budget.  We spent more than we should have, sometimes for reasons out of our control but many times just because we were unable to control our spending.  Getting your spending under control is absolutely critical to your financial success!  So, why in the world am I congratulating you for blowing your budget?  Stay with me a little longer and I’ll explain shortly.

There are many reasons why we overspend our budget, and they can be categorized in 3 areas: 

1. Budget expenses that were incurred for reasons that are out of your control

Sometimes unexpected events cause us to overspend.  One good example of this and probably one of the most common is medical expenses.  Even if you have medical insurance, many times you have co-payments that can easily get you over budget if you have to go under a major treatment.  Another example is an unexpected and significant house or car repair.  You should not worry too much about these types of expenses.  They happen to all of us.  As long as you have enough cash stashed away to cover these types of expenses so that you don’t have to go into debt, you will be ok, even if these expenses cause you to go over budget.

2. Budget expenses that were underestimated and need to be adjusted

Sometimes we just underestimate what is a realistic expense for a certain expense category.  Let me give you an example: income taxes.  We love to get raises and we quickly account for the extra money when figuring out our budget.  But what we usually forget to do is make a corresponding adjustment to the extra income taxes associated with the raise.  Another great example: food.  Many times people make the mistake of just copying the previous year’s budget and expect to be able to live the following year with the same amount.  At the very minimum, you ought to allow for inflation, and increase your budget expense by about 3% every year.  If you have young children, you will quickly realize that the bigger they get the more they eat.  So don’t be surprised if you overspend on food if you did not adjust your budget expense for both inflation and the “growth” factor.  This is another reason for overspending that you should not be overly concerned with.  Just make sure you make the proper adjustments for the next budget cycle.  Inflation is out of your control.  So is your child’s growth.  Unless you have found a way to keep them young forever – if so, please share your secret!

3. Budget expenses that you can control and that were overspent  

Here are the real gems.  These are the expenses that were totally under your control, but you still overspent.  Do you want some examples?  Clothing, recreation, gifts, and so on.  When you set a budget for these types of discretionary expenses, you need to closely monitor them throughout the year in order to stay on track.  If you find that you are overspending, come up with a plan for cutting back immediately until the expense is back under control.  Have you overspent on clothing?  Perhaps you can wait until next years budget to buy that new suit or coat that you’ve wanted to get.  Spent too much on recreation?  Maybe you can skip the movies until your budget is back under control.  Yes, I know this is not fun.  But if you are not committed to sticking to a budget you will struggle financially.  This is true no matter how much money you make.  Just ask Michael Jackson.

Since you’ve stuck with me so far, let me tell you why I congratulated you for blowing your budget.  When you tell me that you blew your budget, you are telling me that you are doing better than most people, just by the fact that you have a budget.  Most people don’t have a clue about where they spend their money, much less whether they’ve overspent or not.  Worse yet, they don’t have a plan for controlling their spending.  And that is why debt keeps spiraling out of control.  If you have a budget and track it, at least you are past the ignorance stage.  By recognizing that you blew your budget you have at least acknowledged that you have a problem.  And this is the first step to recovery.

You can’t improve something that you don’t measure.  By measuring where your money is being spent you can get your spending back under control.  If the reason why you overspent falls under categories one and two above, don’t lose any sleep over it.  Focus on the items in category three.

If you are new to budgeting, I would recommend that you review the article “How much should you save?”  There are also many other interesting articles about budgeting and controlling your spending on other sites.  Let me point you to a few:

• Festival of Frugality at MomAdvice.com has a list of several interesting posts on being frugal.
• All Financial Matters – How Much Do You Spend Per Month On… gives you a benchmark of how much other people spend on utilities – make sure to read the comments.
• Healthy Food on an Unhealthy Budget lists inexpensive healthy foods at Get Rich Slowly. 

If you don’t have a budget yet, now is a great time to put one together.  Consider using a personal finance software package like Quicken.  For more information on how Quicken can help you with your budget see the article “Using personal finance software for your success.”  If you already have a budget, but can’t get it under control, try to focus on items in category three above, and slowly move towards getting closer to your desired spending level.

Good luck with your budget and your financial success.