You’ve blown your budget. It’s been one of those months. For whatever reason this month your budget has decided to self-destruct, and at the end of the day you are left with a couple of not so great choices: a) pretend this never happened and carry on as you have been, b) turn to your handy credit cards to save you, or c) carefully select which bills you will pay this month, and which ones will just have to wait.
We’ve all been there. No matter how much money you make, no matter how much money you have in your bank account at the beginning of the month, the fact is you’ve had one of those months where it feels like an alien has climbed into your bank account and cleverly hidden all of the money you thought was going to be there from you. It’s easy to want to bury your head in the sand after you’ve had one of these months and throw your budget away, but now is exactly the time to get a solid action plan in place and perform some emergency surgery on your budget.
Below are 3 easy-to-follow steps to help you get back on track after you’ve blown your budget. Follow these tips and you can easily find yourself on the road to budget recovery.
Remodel your budget
It would make sense that the first place you need to start to get back on track is with your actual budget.
Talk to any financial professional and they will attest to the importance of having a budget. Have you ever gotten in the car to go on a road trip without directions? Of course not. The same can be said with your monthly finances. Think of your budget as your roadmap to money success.
Most budgets don't tell us the full truth about what is really going on with our finances because they’re only as good as the numbers we put in them. If you’ve gotten off track, it’s worth a few minutes to revamp your budget and make sure it is as accurate as it can be.
Create a 2-column budget template in a spreadsheet program like Excel, Numbers, or Google Docs, or else on a piece of paper. The first column is for the expenses that you think you will spend in a month (aka your budget). The second column is for the expenses that you actually spent that month. Make sure you complete this for the month that you went off track so you can compare the two columns and figure out what might have gone wrong. There’s a chance that you might have left off a few budgeted categories like ATM withdrawals, infrequent payments like car insurance, or you might not have anticipated a large eating out bill for the month.
Knowing your numbers gives you confidence that you can make smart choices going forward and is a powerful step in getting your budget back on track.
Practice financial forgiveness
It’s far too easy to fall into the trap of self-pity after your budget has broken down. You feel bad and your bank account is certainly not happy with you. It’s critical that you shake off those feelings fast because you’ve got to have a positive mindset to start making changes to better your budget going forward.
When it comes to making financial decisions, our brains must manage between rational decisions and emotional decisions. While rationally we know we shouldn’t go over budget, emotionally we might be drawn to making money decisions that aren’t in our budget’s best interest. The act of practicing financial forgiveness is a process to forgive ourselves for whatever emotional money decisions we might have made this month.
Take out a piece of paper, or open a new text document on your computer. Give yourself a time limit, say 1-3 minutes, where you will without censoring yourself write down all of the money mishaps you’ve had this month.
Get them all out on paper. Then, once you’ve completed your list, tear it up or delete the document.
Rationally, you will know that this doesn’t erase your mishaps, but emotionally this exercise goes a long way towards helping your mind to reset.
Done with debt
There are two types of interest that affect your finances--good and bad interest. The good interest comes from your investments in 401(k)s, IRAs, stock accounts and so on. You like this type of interest, and the more you have the better. The bad interest comes from your debt, and unlike its good counterpart, the bad interest that compounds can become your financial enemy quickly.
Compounding, just like interest, can work for you or against you. Bad compounding, where your debt is growing on top of itself, is what you want to avoid at all costs. However, if you’ve had a month where you’ve needed to turn to your credit cards to save yourself, it’s important to make sure you get a solid plan in place to deal with the debt.
Once you assess the damage on your credit card, come up with a 1-3 month payoff plan to get rid of this bad interest. Take a look at your budget and see if you can find ways to cut your spending and increase your savings until this debt is paid off. If you find yourself in a situation where you have multiple credit cards to pay off, consider a few options:
- Roll the debt onto a 0% interest credit card for a few months while you pay the balance down.
- Create a plan to either pay down the debt with the lowest amount owed or the debt with the highest interest amount. Whichever method you choose, commit to it until the debt is fully paid off.
- If it makes financial sense, consider going to a company like Payoff or SoFi for a fixed interest loan to pay off your debt.
At the end of the day, blowing your budget does not have to cause permanent damage to your financial situation. With a smart game plan in place, you can easily make the needed auto-corrections to ensure that your budget stays in working order going forward.
Photo credit: Olly Browning