This post is from our regular contributor, Kristi.
Some financial experts swear by strict adherence to a budget if you ever want to get ahead and stop living paycheck to paycheck.
Budgets are powerful tools which help train you to live within your means and start saving for your future.
If you aren’t careful though, strict adherence to a budget could actually cause you to lose money.
Budget rules should be a guide, not a financial bible. Finances ebb and flow and so should your budget. Here are five common budget rules that you should break on occasion, in order to get the most out of your money.
Rule 1: Never go into debt
Eliminating credit card debt and personal loans is the first step to achieving financial independence. You can’t move forward with investing or setting aside decent amounts into retirement accounts if huge chunks of money are going towards your debts every month.
Why you should break it
Sometimes, going into debt is a good thing. Good debts add value to your life or are an investment in your future. Entering into a mortgage for a home or property is an investment in the equity that can be earned. Starting businesses frequently take on sizable loans as an investment in their company’s potential. Student loans are an investment in your future earning potential with the career you choose.
Another good debt to consider is using a rewards card for everyday purchases. By putting items like clothes, gas, and groceries on a credit card, you can receive travel points or cash back to use on vacation or other purchases. Just make sure that you have money already in your bank account to pay back the credit at the end of the month.
Any loan which will positively affect your future is a good debt. Don’t let the “never go into debt” mindset prevent you from making money choices which will give you a better future. When entering into good debt, just make sure to have the revenue stream necessary to pay off the loans before the debt becomes a liability or burden rather than an advantageous investment.
Rule 2: Don’t buy on impulse
Impulse buying is any purchase made that you haven’t planned ahead and budgeted for. Impulse buying can detract from your ability to invest and save for retirement, and it can distract you from your long term financial goals.
Saving for that second honeymoon or maxing out your IRA every year is a better use of your money than buying unnecessary candy in the grocery store.
Why you should break it
Sometimes, impulse buying can actually save you money. If you constantly adhere to the mindset of “I haven’t planned for this, so it isn’t in my budget,” then you may miss out on business opportunities or great deals which could save you money.
Flash deals are a great example of when you should engage in impulse buying. When I first started looking into transferring my blog to a self-hosted platform, I decided that I wanted to wait and use money from my freelance writing, not our household income, to pay for the switch. When a flash deal gave me the opportunity to pay for three years of service at a 75% reduction in price, I knew that I needed to pounce. Although I had to tap into our monthly budget, I saved $250 by jumping on that deal.
Don’t let your budget suppress your willingness to jump on good deals. It’s good to avoid those candy bars, but try to be open to new and exciting opportunities which could save you money.
Rule 3: Automate your bill pay
Automating your bill pay means you won’t forget any of your important bills and you won’t have to deal with late fees. It’s less stress for recurring bills which come out every month. Paying your bills on time every month also helps you keep a good credit score.
Why you should break it
Automated bill pay is a double-edged sword. On one side it does help to keep you on top of your bills. On the flip side, you could end up paying over draft fees if you a bill comes out unexpectedly.
My husband and I recently had to go through our automated bill pay and decide which companies to allow access to our bank account. Wells Fargo, for example, wasn’t withdrawing our mortgage payment on the same day every month, which sometimes ended in overdraft fees. Even with repeated calls to address the issue, we decided that it was in the best interest of our finances to go ahead and pay the bill ourselves, instead of allowing it to be automatically withdrawn from our account.
If your paychecks are irregular or if a company refuses to withdraw on the same day every month, then it might be best to consider stopping your automated bill withdrawal. A little bit of extra effort by paying the bills yourself could save you from those overdraft fees.
Rule 4: Designate every dollar
Budgeting every dollar by using a cash envelope system or similar method allows you to see which categories of spending are too tight and which have too much set aside. It’s a tangible and visual method of budgeting.
Why you should break it
Sometimes with cash designation systems of budgeting, it’s easy to forget to set aside money for unknown expenses. My favorite term for these unknown expenses is gremlins. These irritating and unexpected bills or fees can be hard to plan for, and you don’t necessarily want to use your emergency savings to cover them.
Broken headlights, maintenance repair fees, overdue library books, and prescriptions for medicine could all fall under the gremlin category. If you do decide to break your money into categories, add another category for the the gremlins. Whether it’s $25, $50, or $100, setting some money aside for no purpose at all will help you cover those unexpected expenses.
If you don’t end up needing to use the money, then you can go ahead and add that extra amount to your real emergency fund.
Rule 5: Strictly follow your budget
Setting a budget and sticking to it can help you create a well-oiled system for your finances. Budgets help bills to be paid on time, and they help you organize your money to pay down debts or build up your savings.
Why you should break it
It’s easy to have a “set it and forget it” mindset when dealing with your budget. A little bit of flexibility goes a long way though. Since your finances are ever-evolving, growing, and hopefully expanding, your budget should be changing as well.
At the very least, create a new budget annually. Even if your revenue hasn’t changed at all, you will have changed as an individual. Our budgets reflect our interests and and our priorities. New interests and new priorities mean that you should have a new budget in place as well.
Reassessing your finances quarterly is a great way to keep yourself up to date on your finances, and to make sure the rules you have in place for yourself are fresh and working well for your investments.
Go ahead and break a few rules
Budgeting practices that work for one person may not be the best fit for you and your money. Don’t feel like you have to follow all of the experts’ rules on budgets in order to get ahead financially.
Do what works best for your situation. If a budget rule that you typically follow has started holding you back, then don’t follow it anymore. Grow, change, and adapt your budget as your finances evolve into something new.
Which budget rules do you follow? Do you ever feel comfortable breaking away from your budget?
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I definitely do not follow automate your bill pay. Every time I do that, I somehow manage to screw everything up (usually because I set it up for X cycles, and then the cycle runs out).
Other than that, we’re very rigorous budgeters, and we create a new budget every month. This works a lot better once you’ve got some sinking accounts set up, so that the “unexpected” expenses are broadly taken care of.
Interesting points, especially the one about impulse buying. I agree that it is smart to be opportunistic and take advantage of deals, but I would argue that knowing what deals to keep an eye out for is better than just impulsively making a purchase.
I actually break the rule of automating bill pay. Even though we don’t typically have hiccups in our payments, we have had enough issues in the past that add up and I would rather take the time to review each bill before I pay it rather than blindly paying everything.
I still like automating my bills, but try to make sure I still review them. I definitely notice if the bill amount is not the usual charge. I’m not impulsive in buying things though it is a rule I should break sometimes! When I know that the price is really great, I still hold back and think about it…often times the deal ends and I’m like bummed that I missed out on the deal. And I have a tough time with budgeting and designating my money…I’m pretty disciplined with spending and saving so I just make sure I save a certain amount each month. Designating each dollar seems too time consuming and something most people will just give up on doing.
Hannah UnplannedFinance We try to be fairly rigorous budgeters as well, but it can be difficult since our income is different every month. I agree that It’s definitely important to keep track of where and when your money is going to cover your expected and surprise expenses.
Ali_AnythingYouWant You’re right that keeping an eye out for the type of deal you’re looking for is a great way to find balance with both saving money and not falling into a bad impulse buy.
blonde_finance Automated pay works well for a few of our bills, but like you, I would much rather have control over knowing how much is coming out of my account for the bills that fluctuate especially.
Andrew LivingRichCheaply I too hate it when I miss out on a great deal that could have saved me a lot of money, especially if it’s something I have been needing. I call it “non-buyer’s remorse” =]
I like these rule breakers. Flexibility is so important in good personal finance. I balance strict budgeting in some areas with some freebies, or areas I can make impromptu purchases in, like when a sale comes up at the grocery store. Even if I go over my budget for the week, I know I won’t have to buy pasta sauce/rice/frozen veggies anytime soon and will save money in the long run.
Automatic bill pay can really backfire in a number of ways so like you, I try to keep it limited to a few companies and I just pay the rest of my bills manually and get track of what’s due in a spreadsheet. As for debt, I wish I didn’t have it but it was worth it in my case and it’s taught me a lot so I’m actually grateful for that.
I definitely try to avoid debt and not buy on impulses. But some debt cannot be avoided. In the future I would only like to have debt if what I’m financing will return me capital, like a rental property. I don’t follow a budget but definitely know what I’m spending on each month.
I too love automated bill pay. It’s a relief to know that the utilities are always paid when due and I don’t have to schedule it. I do keep a very close eye on my bills and I review them each month long before they are posted. Here’s the thing; I never sign up for paper statements. I have everything mailed to me so that it physically arrives in my hands. I know this is not fool proof and it could get lost in the mail but it safer than electronic notifications!
Unfortunately, I fell victim to rule number 2. A little while back I really wanted a pair of sunglasses which were on sale. However, it wasn’t in my budget and I thought that I could find a way to get them for even less. When it came time to finally purchase these cool shades, it wasn’t on sale any more and my plots to get a better deal on the item fell through! Listen learned. Thanks for the insight Kristi!
AlexandraRSF I agree! I truly believe that a little bit of flexibility built into your budget can save you a lot of money in the long run.
Chonce I’m grateful for certain debts too. Even the ones that weren’t directly beneficial to my future taught me invaluable life lessons.
ferventfinance I hope that for my finances too! It would be nice to have only debts which will pay out down the road.
Mrs Crackin the Whip I tend to do better with paper copies too =]
The Mill Street Times Sometimes it’s hard to know when to jump on a deal. In the future you might have luck using a website like camelcamelcamel.com to watch price trends on something you’re keeping an eye out for.
I’ve definitely broken a couple of those rules. For me its tough to designate every dollar especially when my side hustle income fluctuates each month.
I don’t like to use automated payments for bills like phone or cable. We’ve had a lot of problems with them overcharging and probably wouldn’t always catch the extra charges if the bill was automatically paid.
It’s been a long time since I had to deviate from my plan. Fortunately, I’m at the point in my life where it is easy to stick to my spending plan (I prefer the term to budget). My household income is such that I can meet all of my monthly savings/investment objectives and live comfortably.
I like to see you challenging some budget rules Kristi – there’s definitely no boiler plate budgeting solution for everyone, and if you try to follow them blindly you’re setting yourself up for failure. Once you’ve established your own rules, I think having a little ‘buffer’ for breaking them occasionally is helpful, as long as it doesn’t ruin your bigger financial goals.
It really depends upon what your definition of “impulse purchase is.” Mine would more along the lines of “Making an unplanned purchase without fully thinking through the consequences.” It’s one thing to see something on a shelf, and throw it in the cart because of what I like to call the “oooh, shiny!” effect. it’s another to see a great sale, think through the consequences of your actions, and consciously determine that it’s a good choice.
I use automatic bill pay and monitor my bank account regularly. I know how much my bills should usually be so I can easily tell if something looks off. However, I’ve heard about studies that found that people who automate their utility bills end up using more water, electricity etc. Something about the auto payment caused them not to be as mindful of their usage. Not sure if it’s true, but definitely interesting!
Jason @ The Butler Journal I have that same issue, Jason! It’s difficult to designate when you are dealing with “feast or famine” numbers every month.
houseoftre Absolutely! We have that same problem with our phone company.
RetirementSavvy I look forward to reaching that level of financial stability =]
Jason@Islands of Investing Absolutely, Jason! Everyone needs to find which budget solutions work best for their own situation.
DebtChronicles Haha, I try to always avoid the “oooh, shiny” purchases. For me, impulse buying is buying anything that hasn’t been planned for specifically.
SimplySave That is interesting! I would like to see the studies on that. What a fascinating topic!
It was 15 years ago that I began to get my financial house in order and about 3-4 years ago is when I began to notice significant disposable income each month and appreciate the foundation I had established over the previous decade or so.
I completely agree with you on “good” debt. I bought an apartment 2 years ago and I don’t include that when I talk about my “bad” debt that I’m trying to pay off. I’m working to become debt free by next summer, but my mortgage isn’t a part of that. I haven’t really had an issue with any of my Autopay bills. I have a few bills, like my phone and internet bills to be auto paid by a credit card that earns me miles. Then I can pay off that card the next month when I have the money. Luckily, my mortgage is always pulled on the same day, or within a couple days if it falls on the weekend. I do need to remember sometimes though, that if my paycheck will be deposited the same day or a few days after, to pull some money from my savings into my checking just until my paycheck gets deposited. I’m such a finance nerd I’m always checking my bank account though! I’m sure most people don’t do that though, so I agree that taking things off Autopay can be a good thing because it forces you to think about your bills more often and be aware of what’s going on in your financial life.
BadassBudgets I think it’s great that you review your accounts so often! I should probably be looking at my accounts more than I do currently.
moderatemuse I’m probably a bit too obsessive about it sometimes, haha! When I’m in super debt-payoff-mode, I’ll just stare at my charts, dreaming of my next paycheck and planning how big of a payment I can make! I think if you check your accounts at least once a month that’s probably good though, just to give your statement or your account a quick once-over just to make sure nothing looks off.