Why 95% of Budgets Fail and How to Give Yours a Fighting Chance

Growing older is full of painful but ultimately necessary rites of passage:

Changing your mind about something you have strong feelings toward.
Giving up the handful of foods that you love but your GI tract loathes.
Deciding that you’re done learning new social media apps.

Most of us can unfortunately add building a budget and then watching it burn to the list. Thankfully, enough people have failed at budgeting that the fatal flaws are well understood. Here are the 5 reasons why nearly every budget fails and how to give yours the best chance for success:

#1. We don’t know how to start

This has obliterated countless budgets before they even had a chance to see the light of day. The idea of tracking hundreds of transactions across dozens of accounts can feel impossibly overwhelming.

Solution: Make it easy with technology

Sign up for a free app like Empower or Mint that automatically pulls in and categorizes your last 90 days of spending. Enter your account information once and all your data is at your fingertips.

It’s 2023, time to break up with receipts.

#2. We pick unrealistic goals because we don’t know our numbers

When we start a new budget, our motivation is often running high, especially if we’re “serious this time”. This leads to wildly aggressive goals that are completely divorced from reality: “We don’t eat out that much, let’s say $125/month on restaurants.” If you haven’t ever reviewed your actual spending in detail, you lack the context required to set useful goals.

Solution: Be courageous and confront the brutal truth

You have to know where you’re actually starting from if you want to make durable progress. Don’t fall for the trap of adopting someone else’s goals and don’t kid yourself into thinking you will cut anything by 50% or more overnight.

#3. When we fall short of these unrealistic goals, we beat ourselves up

Even if you made it through your childhood with healthy self-esteem intact, you’re still a master at self-criticism and you know just where to twist the knife for maximum pain. Missing the mark on your spending goals often turns this harsh judgment habit on auto-pilot.

Solution: Treat yourself like your best friend

If they came to you and said “You seem to know a lot about money and my budget is a total mess. Would you do me a big favor and look at it with me?”, there is no way your advice would sound like this:

“Clearly you have a real problem with money and I don’t think there is any way to fix it. It seems like you’re not really an adult if you can’t live within your means…You spent how much last month on clothes?!? You’re an idiot!”

“That over-priced latte proves you don’t care about your family! Great catching up, send Cheryl my love!”

As crazy as that sounds, we talk to ourselves that way about money all the time. When you are reviewing your spending versus your goals, try to muster up some of the empathy you would share with your best friend. Don’t ignore one of the cardinal rules about behavior change: We change best by feeling good, not by feeling bad.

#4. The data is meaningless

Unless you are one of the select few who find a dense spreadsheet of spending data captivating [clears throat, wiggles shirt collar back and forth while darting eyes from side to side], your spending data will just feel like a block of numbers. Over-spending on multiple categories doesn’t trigger an emotional response or feel like it matters.

Solution: Make the data as meaningful as possible

By grouping your spending into categories and sorting them from largest to smallest, you learn how each category compares to all the others. If your spending in one area feels like it should be lower than something else you care more about, take action to change that.

It’s also powerful to translate current spending into required future savings. To afford a $100 monthly expense for 30 years after retiring, you need to save $30,000. In other words, if you can eliminate a $100 monthly expense, you just chopped 30 grand off how much you need to save! Use this ratio to understand how you can move your nest egg target up or down by changing your current spending.

#5. We make it purely about deprivation

For almost everyone, reviewing your budget is an entirely negative experience. Best case scenario is you don’t find anything to be disappointed by. Worst case is you’re assaulted with concrete proof that you are spending yourself into oblivion. It’s nearly impossible to stick with something that is so skewed toward the negative. Your brain learns quickly that opening your budget file = pain and it find ways to make it less and less likely.

Solution: Have at least one minimum monthly spending goal

Pick something you truly love spending money on, set a required minimum for monthly spending, and stick to it. If the take-home point from your monthly budget review is that you need to ramp up your latte spending or buy fresh flowers twice as often, you’re much more likely to stay engaged with the process.