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Why Most Budgets Fail (But Yours Doesn’t Have To)

My first time wasn’t until I was a college freshman.

I was 19.

I could tell you that I wanted everything to be perfect, but honestly, I just wanted it to work. I knew what I had to do, but I had no idea how to do it.

I’m talking, of course, about my first budget.

When I finally sat down at my dorm room desk to scrutinize my spending, I was already in debt. And little did I know, I would stay in debt for the better part of ten years. Clearly, I shouldn’t have waited so long.

You see, when I arrived in college, I had a few thousand dollars in my bank account from a summer job. After I purchased textbooks and a few dorm decorations, I had maybe $1,500 left. And within a month or two, I had spent it on pizza and bus tickets to see my girlfriend. I was smart enough to realize that I was spending money I didn’t have, but I wasn’t disciplined enough to stop. I wrote a budget, but month after month, I blew it out of the water. Soon, my first credit card maxed out, and I was on to cards two and three.

Why my budget—like most—was failing.

I think budgets often fail for two reasons:

  • They lack an accurate record of past spending.
  • They lack well-defined goals that are attainable.

When you think about it, a budget is nothing more than a spending goal. When you write a budget, you’re telling yourself, “I will not spend more than X dollars on this type of thing within this time frame.” And that, my friends, is a goal. No different than a goal you might set when you’re trying to lose weight or set a personal best 5k time. And if you’ve ever had experience setting goals, you’ll know that goals need to meet certain criteria to be effective. I like the SMART mnemonic. Goals need to be:

  • Specific: “I will only spend $200 on going out this month and put $200 extra into savings” instead of “I’ll spend less than I bring in this month.”
  • Measurable: Budgeting doesn’t work if you can’t measure what you earn and what you spend. Period.
  • Attainable: If you pay $600 in rent and $200 in utilities, it’s going to be awfully hard to keep your total monthly spending under $1,000.
  • Relevant: Why are you budgeting? Is it to get out of debt faster? Meet a specific saving goal? Test your willpower? Be clear about why you want to budget up front.
  • Time-bound: Basically, you need a deadline. For most of us, it’s the end of the month. But setting daily and weekly budgeting goals may be more effective.

Again, I think most budgets fail because they aren’t attainable and they aren’t measurable (or, more precisely, we fail to measure accurately). Now, I’m going to talk about why this is, how we can do better, and Mint, the popular and free monthly budgeting tool, can help.

Full disclosure: Mint’s parent company, Intuit, is an affiliate advertiser on this site. I like Mint—and am happy to recommend it, after all, it’s free—but it’s certainly not the only budgeting tool out there. Here’s a list of other monthly budget tools for comparison.

Your budget needs well-defined and attainable goals.

Certain nerds aside (many of whom—ahem—may also be financial bloggers), most of us don’t budget because we enjoy numbers and spreadsheets. We budget because we want to achieve a financial milestone. For example:

  • We want to stop spending more than we earn and, inevitably, going into debt.
  • We want to pay down existing debt faster.
  • We want to find extra money every month to save for a home, emergencies, or retirement.

Although these are all worthy goals, they are not specific enough to motivate a really good budget. An example of a specific goal would be: “I need to find an additional $200 a month to pay off my credit card debt by the end of the year. I know I spend too much on going out with friends and clothes shopping, so I’m only going to spend $150 a month on each.” When your goal is specific, you’ll know exactly where you need to watch your wallet and what you’re going to do with the savings. As you see your progress toward your big-picture goal, it will motivate you to stick to your budget on a daily basis.

Finally, I’m a proponent of focusing on one thing at a time. Although a good budget lets you see the whole picture of your monthly spending, setting out to curb your spending in every category at once is risky. Instead, take baby steps. One thing at a time. If you spend too much on going out, try to spend less on going out for a week or two. Then, add a shopping goal. Etc.

Your budget needs an accurate record of past spending.

You can’t manage what you don’t measure.

If you don’t know how much you spent on eating out last month, how do you expect to spend less on it this month? Budgeting begins with figuring out how much money you’ll have for a month, and what you want to do with it. But that’s the easy part. Anybody who got through fifth-grade math can sit down with a pay stub and divide it up. The hard part is tracking where that paycheck actually goes.

This is why the envelope method of budgeting is unquestionably the best. (With an envelope budget, you take the cash you have to spend for a week or month and divide it into envelopes for different things like rent, gas, groceries, etc. When you spend the money in each envelope, you can’t spend any more on that category). For somebody who has had difficulty with other budgets in the past, I’d still recommend trying an all-envelope system. Unfortunately, many people simply don’t use cash anymore, and it can be inconvenient.

Tracking and categorizing transactions in Mint:

Mint allows you to categorize transactions from multiple accounts.

Although credit cards and debit cards make tracking your overall spending easy (you get a statement each month with a tidy list of all your purchases), you still need to sit there and categorize the purchases. It’s tedious. It’s time consuming. And unless you’re one of those spreadsheet nerds, you’re probably not going to do it. Hey, no judging. That’s where budgeting tools like Mint come in. Mint—and others like it—can aggregate and categorize transactions from all of your bank accounts and credit cards. The categorization still takes some manual effort, but Mint learns from you. As soon as you tell it that $1.98 purchases from your corner convenience store are for coffee, Mint will correctly assign these future transactions. And Mint doesn’t lie. When we track our own spending, we may “fudge” a bit. We may not include the $100 in cash we took out of the ATM one Saturday night and blew mostly on cover charges and tequila shots. With a budgeting tool, that cash needs to be accounted for.

Predefined goals in Mint:

Budgeting tools like Mint make measuring your spending easier, which makes budgeting easier. When Mint’s categorization is working well, you can set text or e-mail alerts to notify you if you exceed spending in a certain category. (I recommend setting the alerts about 25% under your monthly goal amounts, because credit card transactions can take a couple days to post). Finally, Mint’s new goals feature allows you to set long term goals and see your progress. When you choose from predefined goals (like buying a car or getting out of debt), Mint guides you through some questions like when you want to reach your goal, what existing assets you want to use towards your goal. Then Mint shows you how much you’ll need monthly to reach your goal so you can tweak your budget accordingly.

To learn more about Mint, read my brief overview or open an account…it’s secure and free.

In conclusion…

Budgeting is a bit like counting calories. Figuring out your goal consumption (or spending) is easy. Diligently tracking every calorie eaten or dollar spent, not so much. Budgeting tools like Mint eliminate the pain of tracking every penny and can help you set attainable goals, increasing the chances your budget will succeed. I just wish I had that kind of help 10 years ago.

What about you? What have you found to be the biggest obstacles to sticking to your budget? How’d you overcome them?

Published or updated on October 7, 2010

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. I love the simplicity of these tips that doesn’t overdo budgeting rocket science methods. The tools were good recommendations, and the envelope method is never obsolete no matter what tech or apps come out.

    In fact, it’s simple ideas like using envelopes to manage spending that I have found the most helpful to my spending on small and spontaneous expenses. I appreciate the thorough accountability to an entire budget without obsessing about each penny.

  2. Scott Smith says:

    I wrote my own budget spreadsheet in Excel 7 years ago after I ended up with $35k in credit card debt post-divorce. I keep track of everything I spend, put it all into buckets, and use the KISS method. Anything I do outside of my buckets is called “spending money”. It’s a lot like Mint, but a lot less intrusive, as I don’t like handing over my bank information to a 3rd party online, given the data security issues many sites face on a daily basis.

    My goal was to pay off all my credit card debt, and even with the addition of another $15k of debt because of medical issues, I’m happy to report I’m about 7 months away from being credit card debt free.

  3. Chase says:

    I also recommend the Diary System in place of the Envelope System. I find it much more feasible in our electronic world. Instead of having physical envelopes, you can create a spending diary in your favorite spreadsheet. Have one tab for each category (groceries, gas, eating out, etc.). Each month/paycheck record an entry of X amount for each category (in the Debit column) and then subtract everything you purchase (in the Credit column…ask your accountant buddy that you go to school/church with if you’re confused) throughout the month. To make keeping track easier, you can upload your spreadsheet onto Microsoft Live Workspace or Google Docs and you can access your records from anywhere.

    This method takes a little more self-control than the envelope method because you don’t have the physical cash (or lack thereof) to prevent you from going crazy, but if you can overcome that, it makes a lot more sense with our credit card/debit card system. The key for me is to recognize that whether it’s purchased on plastic or cash, it’s all coming from the same pocket at some point and therefore it goes into the spreadsheet at the time of purchase and not the time of payment.

  4. John Diggers says:

    As a few have said, good intro.

    My father used to say ‘always expect the unexpected’. So you can plan all you like, always be prepared for anything.

  5. Haley says:

    I have yet to try out a real budgeting system, but I did create my own spreadsheet (nerd alert) to help pay down my credit card debt before I have to start repaying my student loans (I graduated in May). My goal was to use 1/3 of my income (which is not a lot seeing as I have yet to procure full-time, salaried employment) to pay off my two credit cards by the end of September. While I had to be flexible when some unexpected expenses came up, I am happy to report that I paid off my last credit card in full today! Now I’ll be budgeting for savings, wedding money, and those student loan payments. At least I know if I come up with a SMART goal, I’ll get it done.

  6. Nick says:

    haha funny intro! @David, i agree I became a complete nerd when it came to my budget. I created a spreadsheet with formulas and auto-fills and the works, you can call me a nerd all you want but at least keeping my budget current and updated is easy!

  7. Adam says:

    Great article. We need to refocus on our budget with changes in income and spending we have had over the past few months. Don’t ever let anyone tell you there is anything wrong with liking numbers or spreadsheets. Speaking of new expenses, how much has your budget changed since August?

  8. KaseyS says:

    Great post. Figuring out your spending habits not only helps you figure out your spending habits – it helps you determine how they need to change.

    Also – if you’re a pen an paper person and online tools like Mint.com freak you out – just ACTUALLY USE your check register for a month or two.

  9. I very much liked your comparison to counting calories and totally agree. It is very difficult to change our own rut and easy to revert to past behavior patterns. Many seem to think that getting a partner may help in this and often marriage can but just as often two people end up in the ditch together.

  10. I really like this article and how you relate budgeting to other SMART style goals like weight loss. I myself love to use an envelope system, has always worked. One thing I’d like to add to whole diet analogy is that like in diets many times if you fall off the bandwagon there is a tendency to just give up. You can’t let that happen if you do find yourself making some mistakes you need to reassess and get back on track toward your goals.

  11. Lauren says:

    I use Mint and I love it! With Mint, I don’t have to write down or track every penny I spend myself. I also have an acroymn to help me stick to my budget. It’s FAIR- Flexible, Accountability, Incentive,Remember. I’m flexible with my budget in that if I overspend in one category I cut back in another. I also plan on reviewing my budget at the end of the month. I have people to keep me accountable so I don’t spend my money any kind of way. I have incentives for myself for sticking to my budget. The most important part of FAIR is Remember. Remembering my goals help me to not spend money on unneccessary things and it makes me thinks before I spend money.

  12. Lindsay says:

    Re: Envelopes, I HAVE to make a recommendation!

    I have an app called “Envelopes” on my iPod Touch, and it has made a dramatic difference in the way I track my spending! I promise, I’m not paid by them or anything.

    It’s a dead simple app. You put in how much money you want to add per pay period, and then every time you spend, you just click the envelope, click the “withdrawal” icon, and type the amount. Bam. Tracked. So I can use my credit card (and pay it off every month!) or my debit card and still have the benefits of an envelope system!

    If you have a device that runs iOS, you have to try it!

    • David Weliver says:

      Thanks for the tip, Lindsay; I checked out that app very quickly and like the simplicity of it. I’ve been meaning to update my list of financial iPhone apps so I’ll have to consider that one.

  13. Nate Hall says:


    This is a great article and also serves as a great reminder.

    Budgets can be a lot like diets–A great idea, good to set goals and really well intentioned. The challenge comes with sticking to the diet (or in this case a budget).

    Attaining the budget goals is key. Without that, there’s no hope. Set realistic goals and have the discipline to carry it out.

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