How You Can Stop Going Over Budget and Make Saving Habit

Being financially sustainable means being free from unwanted obligations.

Money does impact our lives no matter what others say! Some people associate money with freedom, opportunities, and wealth. While others believe money is the rat race, debts, and an unattainable dream.

Despite common money superstitions, it’s more comfortable talking about personal finances when sitting in your own Ferrari than in a crowded bus.

Here is why so many people fail in budgeting, despite being self-confident and what you can do to stop overspending and make saving a habit.

Sometimes Budgeting Fails

The “marshmallow test” was conducted at Stanford in 1972 to measure how well preschoolers could delay immediate gratification to receive greater rewards in the future.

Kids could take one marshmallow from the table and eat it immediately. Or they could wait for 15 minutes and get two marshmallows as a reward for their patience.

Children tried their best to resist the temptation. Someone closed their eyes and patiently waited for 15 minutes, while others failed right at the end of the experiment.

The result — less than 1/3 of kids managed to suppress their impulsive desire and received two yummies.

Besides valuable psychological and behavioral insights, the marshmallow test explains why people often fail in budgeting.

The future holds uncertainty, which no one likes! Life is short, and we all want to enjoy the present moment, be happy and wealthy now rather than later. A strong desire to get an instant reward can blind even the most organized people, who assume they make rational decisions.

Money management requires self-work and discipline, which are often neglected due to distractions we all have to cope with to stop overspending and start saving.

What You Should Know to Not Fail In Budgeting

There are dozens of budgeting strategies designed to help you plan your personal finances.

You might have heard of the 50%(needs)–30%(wants)–20%(goals) model by Elizabeth Warren. A “Pay yourself first” system 70%(bills)–10%(savings)–10%(investment)–10%(charity) by Robert Kiyosaki.

These are great budgeting strategies to start with if you would like to track and plan your monthly income. I’ve tried some of them and came up with a few implications why they might not work for everyone:

1. The “basic needs” expense category varies for different countries and income levels. Citizens of third-world countries reported spending up to 80% of their monthly income on essential purchases. In contrast, the same expenses would take up to 50–60% of the monthly paycheck for someone living in the western world.
2. The “savings” budget is a broad term. It might imply short-term savings to form a financial cushion, or it can also mean long-term savings for retirement, as an example. You can’t plan long-term savings unless you have enough means to cover current emergencies!

It is where budgeting can be tricky! I tried and failed several times before creating a (temporary) budgeting plan that serves my current needs. Why temporary? Expenses and income change all the time, and you won’t be able to forever stick to the old-good budgeting plan.

Once you create a financial cushion, your priorities can change. You might start investing or open a long-term savings account. Don’t give up on budgeting if it does not work yet! Instead, review your expenses and adjust them accordingly.

Budgeting is intended to prevent overspending because overspending ultimately leads to debt.

How to Stop Overspending and Make Saving a Habit

Richard Jenkins is a former MSN Money editor-in-chief who’d struggled with personal finances for over 20 years before creating his financial freedom.

Jenkin’s initial approach to budgeting was the following: costs should never exceed income.

He carefully tracked his expenses during the month and then adjusted whatever his targets were in each budget category. After using this method for a while, Jenkins started to question its effectiveness and looking for a more effective way to handle the budget.

He admitted that existing budgeting models don’t work for everyone in every situation.

It is how the “60% solution” budgeting model was born.

When I came across Jenkins’ budgeting model for the first time, I thought, “Gosh, one more budgeting system! Don’t we have more important things to deal with in this world?”

I’ve failed in budgeting many times, and I did not believe another system would make a difference. If your monthly earnings exceed expenses, it does not necessarily mean you’ll save what’s left. You need a plan, a money model that would allow you to develop a saving habit while allocating means to what matters. That was my problem, and I discovered a smart solution for it.

Here is how you can organize your personal finances and adopt a new money mindset with Jenkin’s “60% solution” model.

60% Committed Expenses

According to Jenkins, you should allocate 60% of your monthly income to the committed expenses, like mortgage, food, car payments, utilities, as well as any other bills you have already committed to paying.

These are all essential and inevitable expenses you have to endure monthly to support your way of living.

Apparently, 60% is not a magical number that works for everyone. Jenkins admitted it worked as a goal for his family. Depending on your situation, you may have to adjust that number accordingly.

When I started tracking my committed expenses, I’ve noticed the total sum was quite often the same.

In 2–3 months of expense tracking, you’ll be able to define the exact percentage of your income that should go to the committed expenses.

10% Short-term Savings

Are you tired of sitting at home all day long? Would you like to go on a trip instead? If yes, you’ll have to save some means first!

Do you want to quit your current job? The same thing here — you need to have a financial cushion, which will feed you and your family until you land a new job.

In both cases, you foresee substantial financial expenses in the nearest future. A monthly paycheck might not cover your upcoming needs. Hence, you better prepare in advance.

Richard Jenkins suggests putting aside 10% of your monthly income to the short-term savings category, which is supposed to serve your goals for the next 1–2 years or help in case of emergencies.

I recommend forming a financial cushion first. It will help you maintain a comfortable living for at least six months if you lose a job or decide to change a workplace.

Once your financial cushion is created, you can start saving for an upcoming trip or planning a new big purchase.

It does not matter how you spend your short-term savings. What’s important is to adopt a money-saving habit and always have enough means for all your needs.

10% Long-term Savings

Even the most cherished dreams should come true one day! It is the essence of our existence — to live a long and happy life!

Dreams don’t work until you do the dirty job yourself! However, it’s often easier to say than to do.

If you plan your long-term goals now, you’ll have a much higher chance of succeeding.

Jenkins suggests allocating 10% of your income to the long-term savings category. It should help you make big purchases and investments in the future. For instance, you can start saving for your kids’ education now and avoid tremendous expenses later. If you’ve ever dreamed of buying your own house, there is no better moment to start than now.

Even $30 can make a huge difference in the long term if you start shaping your future today.

10% Retirement Expenses

Retirement is never on top of our minds when we are young. Why bother about it if it seems too far away?

My grandma once put it well: “Life passes by very fast. In a blink of an eye, you end up being retired. I don’t even remember the moment I actually lived.”

Teresa Ghilarducci, an economist and one of the US’s leading experts on retirement, shared her concerns in regards to the recent global shifts:

“Our data is showing that, because of the current recession, about 50% of workers over the age of 55 will be poor or near-poor adults when they reach 65.

A person who’s 65 will be near-poor or poor if they’re living on less than $20,000 a year. I think we could all agree that means chronic deprivation for the rest of life.”

Whatever age you are now, it’s never too early to plan your financially secure retirement.

Jenkins suggests diverting 10% of your paycheck into the retirement saving plan, where your wealth can grow exponentially and help you spend golden years peacefully.

Here is a summary of the best individual retirement plans, according to the Forbes advisor:

As self-employment is getting more popular these days, there are dedicated retirement plans for self-employed individuals running small businesses.

10% Fun

It’s the last but not the least important category when it comes to personal wellbeing.

With all this budgeting planning, don’t forget to have some fun! Your current self and all your present decisions create an ideal future self! Hence, save some money for joy and entertainment that would make you happy now.

Richard Jenkins suggests allocating 10% of your monthly paycheck to fun activities. You can spend this month on quality rest without any regrets.

From my experience

I’ve been following this specific advice for a while but failed many times. 10% savings was not enough to cover all my needs. Hence, I often sacrificed other budget categories to maintain my preferred life standard.

You will only know how much you need for all your fun activities once you start tracking your expenses! If you exceed your fun budget, but you don’t want to give it up, there are three options:

1. Plan your fun expenses and try to fit them into 10%.
2. Increase your total monthly earnings.
3. Reduce committed expenses and redirect the savings into the fun budget.

Make your surplus an expense! As Ankala Subbarao once put it well:

“A dollar saved is more than a dollar earned because you don’t have to pay income tax.”

My Closing Thoughts

I want to conclude with a great quote by an American entrepreneur and a famous financial books author, Robert Kiyosaki:

“Your financial future is determined by your expense column.”

You can live your life to its full extent and end up with $0 at retirement. Or you can control your expense column and consciously create your successful financial future.

Everyone has an equal opportunity to succeed with all knowledge and means available. However, the outcome will be drastically different for everybody.

Succumb to temptation now, or adopt the money mindset and crush your future goals — the choice is yours!

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