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If budgeting never seems to work out for you, this might be the culprit.

When it comes to managing your personal finances, two terms that often get used interchangeably are “overbudget” and “overspending.” While these two concepts are related, they have different meanings and implications for your financial health.

So what’s the difference?

Being overbudget means that you have allocated more money to a particular category or expense than you can realistically afford.

The most common cause of overbudgeting is planning all of our expenses for the month before you have the money to cover them. For example, if your monthly income is $2,000, but you plan to spend $2,500 on expenses, you are overbudget.

In true zero-sum budgeting, you can only budget what you have. Budgeting any more than that is wishful thinking, and will prevent you from having to make the hard choices you need your dollars to make.

On the other hand, overspending means that you are spending more money than you have. For example, if you set a monthly budget of $200 for groceries, but end up spending $300, you overspent.

It happens to us all. Just adjust your budget and move on!

Why does it matter?

The primary difference between being overbudget and overspending is that being overbudget is a result of poor planning or unrealistic expectations, while overspending is a result of poor money management.

Being overbudget can be a minor issue that you can quickly fix by adjusting your budget or cutting back on expenses. But it may require some prioritization!

Overspending, on the other hand, can have serious consequences, such as accumulating debt, missing payments, or not being able to save for emergencies or long-term goals.

Another difference between being overbudget and overspending is the degree of control you have over each. While being overbudget may be unavoidable in some cases, such as unexpected medical bills or car repairs, you have more control over overspending. Overspending is a behavior that you can change by tracking your spending, setting priorities, and creating a realistic budget that aligns with your income and financial goals.

The Solution: Plan & Track

One of the most important steps you can take to avoid overspending and being overbudget is to track your spending. Tracking your spending means keeping a record of all the money you spend, either manually or using a budgeting app or tool. Tracking your spending has several benefits, such as:

  • Increased Awareness: Tracking your spending helps you become more aware of your money habits, identify areas where you may be overspending, and make informed decisions about your spending priorities.
  • Better Planning: By tracking your spending, you can create a realistic budget that aligns with your income and financial goals. A budget helps you plan for upcoming expenses, save for emergencies or long-term goals, and avoid overspending.
  • Accountability: Tracking your spending holds you accountable for your money decisions and helps you stay on track with your financial goals. When you see your spending patterns, you can make adjustments and stay motivated to achieve your goals.

Stay ahead of the curve

In addition to tracking your spending, proactively budgeting your money is essential for financial health. This means creating a plan for how you will spend your money before you spend it. There are many benefits, such as:

  • Increased Control: Proactive budgeting puts you in control of your money and helps you avoid impulsive buying or overspending. When you create a budget, you know exactly how much money you have available for each expense, and you can prioritize your spending accordingly.
  • Reduced Stress: Proactive budgeting reduces financial stress by helping you plan for unexpected expenses, avoid debt, and save for emergencies or long-term goals. When you have a clear plan for your money, you can make informed decisions.

You can start today by signing up for Vermillion! Your wallet will thank you.

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