At the end of last month, I was keying in the last bit of expenses into my spending tracker app. In a slow motion sort of feeling I saw my balance show a big red negative number. “-$150,” it says. I was partly surprised and partly puzzled. How the hell did I go over budget by $150?! So I did a little reflection and reviewed my spendings. The contributing factors include mobile bill for 2 months (forgetting to pay the month before), stocking up on groceries and buying a glass cabinet from IKEA.
First of all I got to say: I rarely forget to pay bills. And it’s highly recommended to pay your bills on time. As for the other things, I’ll give you a glimpse into why these purchases are OK; or at least justifiable. Regardless, going over budget has spurred this article in my mind like brewing a morning coffee. “I’m going to write about going over budget,” I told my wife. She replied, “Oh that’s good! And maybe you can talk about how to prevent it and-“. Me typing the title: “And why it’s OK,” I mumbled. “No, it’s not OK!” she soft-shouted quickly. But let me tell you why it’s fine (subject to some conditions).
When is it OK to go over budget?
Going over budget is the Achilles’ heel of our financial plans. One time leads to another and in the end, our whole bank account is in the red. Knowing this, when is it OK to do so?
1. You’re not living paycheck to paycheck
Apart from peace of mind, the safety net of not needing 100% of your paycheck is a great luxury. I’m not sure if I mentioned this before but my monthly budget has a nice little fail-safe: you see, I don’t budget my whole paycheck into it. Which means I have a little bit of my pay floating in limbo. Truthfully speaking, this is not effective use where I could actually put it to savings, pad up the budget more or just invest it. But all this while, I’m simply taking it as travel savings. So when I’m not traveling, it’s my buffer for conscious or unexpected expenses. Kinda like a second, smaller, less certain emergency fund.
2. Emergency fund is set up
I’ve said before that having an emergency fund gives a peace of mind. With one set up and topped up, I know I’ll be fine if the need suddenly arises. So combined with Number 1 here, going over budget impacts my financial health on a scale of little-to-none. Mind you, this is going over budget once in a while; not always. I do get a psychological impact though; I feel like I’ve failed my budget last month but that’s more emotional than anything.
3. Stocking up goods on a deal
Here’s a fun tit-bit about me I’ve never shared before: I, a strapping man only in his 30’s, have high cholesterol. “How could this be!?” you may wonder but alas, life is as cruel as it is beautiful. But I digress. One of the lifestyle changes I’ve made is I eat oats almost every breakfast. And to make it bearable, I use almond milk to prepare it. This means that I consume copious amounts of almond milk! And they cost about $5 per carton; it’s outrageous! So last month (in March), our local supermarket had a deal: Australia week! Stuff from the Great Outback were on sale. And my precious milk went for $3.90-ish a carton. So naturally, I jumped on the deal and stocked up to last until October.
From my calculations, I’d have probably saved over $40 in the long run. This story is simple: I jumped on a discount so that for the next few months, not only do I not have to buy more white nectar for my oat, I saved on otherwise spending more during normal times.
4. One-time purchase
The glass cabinet we bought was something I’ve thought about for quite a while now. Almost 3 to 4 months to be exact. So when it went “on sale”, we finally got it. (I was later told by a friend that this sale was actually not as big as they made it seem. He had bought the same for an even bigger discount before; +1 for marketing.)
So this is a combo of the previous points: save up extra money, buy things on sale. And because I don’t plan on buying more any time soon, my wallet will have time to recover. However, multiple “one-time” purchases in a short timeframe ruins this rule; that’s simply splurging, no?
So when is it not OK to go over budget?
Apart from the complete opposite of why it’s OK, here are 3 red flags that you can notice yourself if you keep a record of your spendings.
1. Consistently going over budget
If over the last few months you’ve been going over budget, it simply means you need to look at your spending habit. Are you paying for some unnecessary things? One thing I can see from my past spending is that I do spend quite a bit on eating out (that’s the only thing to do in Brunei anyway, right?) So back in February, not-so-consciously, I ate out less and ended up with a surplus in the budget! Moderation is definitely key here.
Do have a look at your own past spendings and ask yourself “What can I live without that I’m paying a lot for?” You’d be surprised by how much we spend without noticing especially multiple transactions of $1-2.
2. Splurging too much
We get it; life is stressful. And nothing helps more than some retail therapy. At least for the moment. If you realise that you’ve been splurging, it’s a huge step. That’s because you can’t solve the problem without knowing what the problem is.
Best way I can think of for tackling splurging is a need vs want analysis. Ask yourself: “Do I really want it? Will I still be thinking about buying it 3 months down the line?” This simple train of thought helped me save money from being spent building a gaming PC and from buying a TV and gaming console. I think they’re nice to have but in the long run, I wouldn’t need them as much.
3. Drowning in debt
Even though AMBD has put a 60% TDSR system in place to prevent the uninformed populace from over-borrowing, it’s not foolproof. We often hear people have tonnes of loans to pay off and usually for something to boost their public image like a fancy car. Worst of all is credit card debt where there’s expensive interest to pay if you do not make payments.
I’ve read there are 2 methods for effective debt tackling: the snowball method and avalanche method. Both are pretty cool tricks. Heh. But basically they focus on paying off the minimum required amount first and then putting more into a debt of choice (as per the strategy) and letting it build momentum.
Going over your monthly budget isn’t the end of the world. There could be circumstances which forces or even allows us to pay up for some stuff. I believe that if it’s beneficial in the long run, it’s worth taking an opportunity. As long as your budget is not constantly in the red every month, I think it’s OK to stretch the limits sometimes. At the end of the day, it’s your money and you call the shots. How important are your financial goals to you? If your answer is along the lines of “Very!” then building financial literacy and discipline are the foundations of which you will shape your monument. A foundation made of debt and overspending is an unstable one indeed.
A budget tells us what we can’t afford, but it doesn’t keep us from buying it.
– William Feather