Why Budget Categories may be Sabotaging your Savings Efforts

I struggled for years to spend within my means. I tried budget app after budget app thinking this time I would get it right. And I never could. Though I was slowly improving other areas of my finances, I could not keep my spending within the amount I set every month. Now there are a lot of factors at play here including money stories I was telling myself and an unwillingness to be uncomfortable (more on those another day!) but I would later discover that trying to force my spending into specific spending categories was part of my problem.

I share this because I spent years thinking I was the problem instead of thinking ‘maybe I just haven’t found the solution that works for me’. These may be some of the reasons why using budget categories to improve your spending habits may not work for you:

They are overly complex and time consuming

First off, you need to take the time upfront to determine what your categories are and how much money should be allotted to each. Then you need to spend time mapping your transactions to spending categories each week. Yes, some budgeting apps automatically map your transactions to categories but they often don’t know how to map new merchants or they incorrectly map them. We are busy and even if we weren’t, this is not how a lot of people want to spend their time - so they give up altogether.

I also want to bring up a specific scenario that always drove me crazy because I know some of you can relate - we’ll call it the ‘Target problem’ even though it can apply to other similar stores. No, the Target problem is not that you always go in there with the best of intentions and end up leaving with $100 worth of stuff you ‘didn’t know you needed’, though that is a problem. The Target problem, in regards to budget categories, is that you typically spend across several different categories in one shopping trip - for example, groceries, household, clothes, kids stuff, etc. When I was trying to work with budget categories, none of the apps allowed you to take one transaction and apply it to several different categories. Hopefully this has changed, but even if it has, I would be unlikely to go through my receipt and add up the different subtotals that should go into each category and then go into the app and manually make the updates.

They make it hard to be flexible and life happens

Unexpected expenses will come up. Sometimes these will be larger emergency fund type expenses (if you have one 🤞). Sometimes they will be smaller, non emergencies that just happen and that’s part of what makes life fun and non robotic. But these expenses, that don’t have a category or don’t fit into your tiny Miscellaneous category, are enough to throw some people off and make them quit tracking their expenses entirely.

Some people live more spontaneously

This was a big one for me. I am a fairly spontaneous person and accepting this instead of trying to change it helped me tremendously. When you are more on the spontaneous side, then it makes sense that you will not be able to spend the exact same amount in each category every month. Yes you can adjust the categories, but who is going to do that after the fact and quite frankly, that’s just not my personality. Also see point above regarding time consuming.

Variable income

This hasn’t applied to me because I have usually been a salaried employee but it applies to more and more people these days as gig work, side hustles, and multiple jobs become more prevalent. Not knowing how much you are going to bring in every month only makes it harder to determine how much you should be spending on specific areas of your life.

A Potential Solution

If you have struggled with budget categories for a while, it may be beneficial to simplify your efforts. Start by simply setting an overall amount that you would like to spend this month. If things get tight, then you can try reducing your spending across everything, cutting back in certain areas, and implementing some ‘no spend’ days. However you do it, just try to keep your spending to no more than that one total number you set for yourself. That’s it. And if you didn’t make it this month, try to get closer to your target next month.

Let me know in the comments if you’ve had other challenges trying to work with budget categories and if you have found any solutions that have worked for you!