4 Things That Might Happen If You Don't Follow a Budget

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield

Many Americans don't maintain a budget even though it's one of the most useful financial tools out there. Here are some unwanted consequences that might ensue if you refuse to budget. Image source: Getty Images.

When you think about the ways you might want to spend an evening, you might imagine yourself curled up with a good book, camped out in front of the TV, or at a restaurant having dinner with friends. Chances are, a few hours of quality time with a spreadsheet and calculator aren't going to top your list. But if you don't make a little time to create a budget, and then pledge to stick to it afterward, your finances are likely to take a turn for the worse. Here are a few nasty consequences that might ensue if you neglect to budget.

1. You'll lose track of your spending

The purpose of having a budget is to see where your money is going, and where there's room to spend less. Therefore, if you don't follow a budget, you risk walking around virtually clueless about what your expenses actually cost you, and that might lead you to make some pretty poor decisions.

Imagine you think you're spending $600 a month on groceries, and so you decide to sign up for a meal-planning service that costs you just $500 a month instead. That's $100 in savings right there! Ah, but not so fast -- if it turns out you only spend $400 a month on groceries, suddenly, you're overpaying in a spending category you could've otherwise kept down.

2. You'll fall short on your savings goals

Whether you're saving for emergencies, retirement, a home, or another milestone, if you don't know where your money is going, you'll have a harder time curbing your spending and freeing up cash to put in the bank -- or, in the case of retirement, a 401(k) or IRA. And that could hurt you in the long run.

Say you want to retire at a young age with a sizeable nest egg, and you figure out that to do so, you'll need to consistently set aside $300 a month during your working years. If you lose track of your spending, you might miss that mark time after time, thereby lowering your chances of getting to retire when you want and how you want.

3. You'll increase your risk of landing in debt

It's easy to overspend when you have no idea how much your bills cost you regularly and how much you can afford to be paying for living expenses given your take-home earnings. As such, not following a budget increases your chances of racking up costly credit card debt -- debt that can trap you in a seemingly never-ending interest cycle before you know it.

4. You'll damage your credit

Overspending to the point of credit card debt can send your credit score plummeting. That's because one major factor in determining that score is credit utilization, or the extent to which you use your available credit. If you carry too high a balance, your credit score might take a tumble, and once that happens, you might find it difficult to buy a home, rent an apartment, or even get a job. Without a budget, however, you risk overspending and damaging your credit in the process.

Creating your budget

Clearly, not following a budget is bad news, so if you don't have one in place, schedule a few hours to set one up. To do so, comb through your bank account and credit card statements from the past year, and see what expenses you've been facing on a monthly basis and what they cost. Next, factor in once-a-year expenses, like annual insurance premiums or license renewals, and make sure you're allocating 1/12 of their cost to each month's spending. Finally, create a line item for savings, because, ideally, you should be setting aside a good 15% of each paycheck or more for retirement (or emergencies, if you don't yet have a fully loaded emergency fund).

Once you have all of that data laid out for you, compare your total spending to your total take-home pay and see where you stand. If you earn enough to cover your bills as they stand and still have enough money to put money in a savings account, then you're good to stick with that budget until something changes. On the other hand, if you find that you're spending more than what you're making, or that you max out your paychecks on spending and don't have any wiggle room for savings whatsoever, then you'll need to start cutting corners, whether it's downsizing your home, canceling cable, or cooking at home rather than dining out.

Budgeting can be an eye-opening experience, for better and for worse. It's also something that's extremely easy to do, so carve out a couple of hours to create your budget, and then check in on it once a month to make sure you're following it. You'll be thankful for it when you avoid the above consequences -- consequences nobody wants to deal with.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

Two of our top online savings account picks:

Rates as of Feb 26, 2024 Ratings Methodology
Advertisement
SoFi Checking and Savings American Express® High Yield Savings
Member FDIC. Member FDIC.
Rating image, 4.75 out of 5 stars.
4.75/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor

APY: up to 4.60%

APY: 4.35%

Min. to earn APY: $0

Min. to earn APY: $1

Our Research Expert

Related Articles

View All Articles Learn More Link Arrow