5 Reasons Budgets Don’t Work
Posted by Gail | Filed under Budgets
People are always willing to volunteer their wisdom about budgets to me. I’m a Budget-Discussion-Magnet it seems. And nine times out of ten, people want to tell me why budgets don’t work. I agree. Most people’s budgets don’t work for a few basic reasons. Here’s my Top 5 List:
Inaccurate Income Projections: I can’t believe the number of people who don’t know how much money they make. People, whazzup with that? How can you have a hope in hell of having a budget that works if you don’t know how much money you bring home. I know there are a variety of pay periods: monthly, semi-monthly, bi-weekly and weekly. But all you have to do is look at how much is coming into your accounts to know how much you actually make. If it varies from one month to the next, then you use the lowest income you have as your basic income, and use whatever extra you earn to fund stuff like home maintenance, vacations, gifts, and the like.
Not Enough Categories: Most people generalize their budgets too much to get an accurate picture of where their money is going. I swear if I see one more budget with “spending money” I’ll spit. It’s all spending money. What are you spending it on?! You have to have enough categories in your budget to give you a real sense of where the money goes and where you may be able to cut costs. Careful now; too many categories and you’ll make your budget such a chore that you’ll toss it in no time at all. Another problem that goes hand in hand with this one is…
Failure to Include Expenses: Not all expenses come in every month. Insurance bills can come annually. Property taxes can come quarterly. Service contracts, dental bills, health-club renewals… there are lots of things that pop up only once or four times a year. If you don’t include them in your budget, you won’t have the money at the ready when the bill comes in.
Cash: People spend cash without keeping track of where it’s going and that throws their budgets out of whack. Some people use bank machines like a wallet, pulling $20 here and $40 there, as needed. The problem with this approach is that money flows away without any record of where it’s gone. And if you know you have a bill coming due in a couple of days, but your partner doesn’t, and (s)he goes into the account for cash, then you won’t have the money available to pay the bill
No Plan to Save: People seldom put a “savings” line on their budget. Despite how well known the “Pay Yourself First” idea is, people still don’t do it. They wait to see how much they have left to save. And it’s usually ZERO, Zip, zilch! If you’re serious about savings it has to be a line item on your budget, you have to identify a specific amount you’re going to save (both for long-term savings and for emergencies), and you need an auto-deduction to a savings account to MAKE IT HAPPEN.
Budgets are a great tool providing you use them the right way. You need to have spending categories that fit your personal situation, your spending habits, and your income. Don’t look to anyone else’s completed budget as a guide, except perhaps for a list of categories you may not have thought of. Make sure you review your spending patterns to see if there are areas where you’re overspending. There may even be things you’re spending money on of which you weren’t even aware.
Budgeting isn’t just about tracking your costs, it’s about making sure you’re spending your hard-earned money the way you WANT to. Maybe you want to get out of debt. Maybe saving for a downpayment is a priority. Perhaps traveling is your big Wanna. It doesn’t matter what your goals are, if you don’t identify them, you won’t achieve them. And with no goals and no budget you can be sure that another year down the road, you won’t be one iota better off.
BTW: I’ve been getting a lot of questions about how I decide what money goes into the Magic Jars. The Budget Worksheet is the place to go to figure this out.