Most people understand keeping a budget will help you better manage money and reach greater financial success, much like you know you should lose weight and exercise to live longer. Yet it is so hard to do successfully. The reality is that very few are actually able to maintain a budget for any length of time. Budgets and financial management are items we know we need and easy to verbally agree. There are lots of resources readily available, and yet we still struggle with implementation.
There are several common mistakes that can set you up for failure, when attempting to keep a budget. Understanding these roadblocks can increase the odds for success.
Create a Budget for Your Life that’s Realistic. It is a common habit to create a very strict budget that accounts for every penny you earn. This very restrictive method is nearly impossible to follow because unexpected expenses always come up. The best way to create a realistic budget is to track spending for at least a month so that you can determine where your money currently goes. Building a budget off actual expenses will increase your chances of success.
Leave Room for The Unexpected. The easiest way to do this is to create a line item for miscellaneous expenses. Virtually every month there will be something you need to purchase that is not built into your budget. You cannot plan for every contingency. A doctor appointment, a car repair, food or gas prices rising, just about anything can throw a budget off. Having access to a savings account can also help with unexpected expenses that arise each month.
Another place budgets get off track are forgetting irregular bills that only occur quarterly or annually. Car insurance, taxes, life or disability payments may not occur regularly and will send you over, if you leave them out.
Think About Small Purchases You Make, It Adds Up. Purchases that are small are generally either habitual or impulsive, and can add up to large amounts over the course of a month. The $5 latte is a small purchase but this daily habit adds up to $150 a month every day. Finding a less expensive way to enjoy these luxuries reduce feelings of deprivation. If you can’t find an economical alternative, reducing the habit to once a week, will free up funds for long term goals.
A high spending threshold results in a lot of small purchases that you don’t consciously consider as part of the budget. When this happens you can go over budget without ever noticing. One effective way to manage this is to give yourself a specific spending budget for incidentals each week that you don’t have to specifically account for in the budget. This might mean giving yourself 50 dollars a week you can spend whatever you want. You will feel like you have more control over your money, have more financial freedom, and will still stay within your guidelines.
Don’t Feel You Need a Budget? When you have little or no discretionary income it is tempting to forgo a formal budget. This is a mistake because the process of creating a budget has the ability to free up money, giving you more discretionary spending. The truth is every household has variable expenses. Food, gas, and toiletries all fluctuate from month to month and generally can be better managed. A budget gives you a big picture look at where your money goes and enables you to carefully consider each line item to find savings.
The Budget Controls You Instead of You Controlling the Budget. The point of establishing a budget is to give you more control over your money. Yet often there is resistance to creating a budget because it feels restrictive and controlling. No one wants to be told what to do. These natural tendencies can really hurt efforts to manage money. When you feel the budget controls you, there are more rules to follow, or the budget is telling you what to do, you naturally resist. Consider a diet that eliminates sugar. While you are on the diet, all you can think about is having the forbidden food. This will always fail in the long run. Budgets are the same way. Work with your spending habits, rather than fighting against them. Play to your strengths. What spending do you make that doesn’t matter. Cut those expenses, saving room for the things that really do matter.
See Budgeting as a Marathon, Not a Sprint. It takes time to adjust spending patterns so it becomes a lifestyle instead of a diet. It takes time to see success, especially if cutbacks are small. It takes time to develop new habits. No one wants to feel like a failure and when you go over your established budget, there can be a sense of failure. You don’t start out running 26.2 miles, you start out running (or even walking) one mile at a time. Treat your budget the same way and you will find success.
Attitude is Everything. Maintaining a budget is as much psychological as it is financial. Begin the process with a positive attitude, believing you will succeed and your chances of success have just risen dramatically.
Lack of Education. Educational blogs, budgeting templates, and spending apps, are readily available online. Books, blogs, and websites can teach you everything you need to know about managing money. This information can help you gain confidence and reduce fears that comes from dealing with subjects you don’t feel you have mastered.
Thinking the Budgeting is Too Hard? With all the resources and technology available creating and managing a budget is easier than ever before. Keep it simple, understand the process, and automate as much as possible. Make it a part of your life, rather than an optional separate activity.
You Lack Self-Control. Keeping a budget does require certain amount of self-control and discipline. It is not a get quick fix solution to financial worries nor are immediate results realized. Just because you don’t have a heart attack when you eat a cheeseburger, does not mean you should eat a cheeseburger every day. This same principle can be applied budgeting. Long-term goals are sometimes harder to achieve because it is more difficult to stay focused for long periods of time. This makes the budgeting process all the more important for reaching long-term goals.
Creating A Personal Budget Is Not an Exact Science. There will be weeks and sometimes months when you will feel like everything breaks, and you just can’t stay on budget no matter how hard you try. The good news is that you can hit the reset button with each set back. If you blow it this month, start again next month. The key to a successful budget is creating a plan that mirrors current spending patterns and tweaks them just a little. Then every quarter or six months, readjust for bigger results. This method saves money and prioritizes spending without feeling like a sacrifice. Integrating your budget as part of your lifestyle will result in positive long-term rewards.