Even when you’ve got a carefully planned budget in place, life happens. All it takes is one unexpected expense – say, a home or car repair; a random impulse purchase; emergency dental work; you name it – to knock your finances off course. Blowing your budget is frustrating, to be sure. But it doesn’t have to mean long-term disaster. Part of living with a budget is knowing exactly what to do when your budget goes off the rails.
Here are six ways to get back on track after you blow your budget:
- Stay calm. It can be stressful to realize that you’ve blown your budget, but panicking won’t help. Take a deep breath. Remind yourself that it’s not the end of the world. Once you’re ready, you’ll need to take action to figure out what you’re dealing with, which leads me to our next step . . .
- Take stock of the situation and make a plan. You know that you’ve blown your budget — but you’ll need a little more information than that to figure out exactly how you’re going to proceed. A few useful questions to answer include: When is your next payday? Do you have any major, unavoidable expenses – like mortgage or rent payments or car payments — on the horizon? Are there any non-essential expenses you can postpone? Your goal here should be to figure out exactly how much money you’ll need to keep you financially afloat in the short term.
- Dip into your emergency fund (if you have one). You’ve probably heard it before, but at American Credit Foundation, we can’t stress it enough: It’s critical to have an emergency fund that you can use for, well, emergencies. Ideally, you should have around three months of living expenses set aside in case you are laid off, or faced with an unavoidable expense like a medical emergency. But, an emergency fund can also provide a much-needed infusion of cash if you suddenly find yourself flat broke. Use the money to take care of unavoidable expenses only (like a mortgage payment). Just remember: If you take money from your emergency fund, you should make it a priority to pay it back as soon as you’re back on solid financial footing. And if you don’t have an emergency fund, you should make it a priority to start one as soon as you can.
- Slash your spending. Cut out all unnecessary spending until you’ve got your budget under control. Take a look at your typical spending in a week and see what you can do to free up some extra cash. For example, if you normally buy your lunch, start brown-bagging it. If you’ve got a gas-guzzling commute, try finding a carpool or use public transportation. If your social life revolves around going out on weekends, invite friends over for a super-frugal evening of board games.
- Ask “why.” Maybe there’s a perfectly clear reason that your budget went sideways this month. For instance, if you know that you had to pay for an emergency root canal or repairs on a flooding dishwasher, there’s not much mystery to solve. But if you’re not quite sure why you’re suddenly a few hundred dollars short, it might be time to do some detective work. Did a week of overspending at the grocery store put you over? Did you indulge in some “retail therapy” after a stressful work week?
- Overhaul your budget.
Once you know why you overspent, it’s time to go back and make some adjustments to your budget. If you found yourself in a bind due to a legit emergency, you should create an “emergency fund” category. If you went over budget on something specific like groceries or gas, you should make some adjustments to help ensure it doesn’t happen again. For example, taking $20 or $30 from your entertainment budget and moving it to your food budget may help.
Remember, budgets aren’t perfect. Think of your budget as a work in progress – and it’s perfectly normal to go back to the drawing board if your budget isn’t working for you. And if you ever want budgeting help or advice for dealing with debt or credit problems, you can always reach out to the American Credit Foundation.