It’s the beginning of the month, and you sit down to prepare a fresh budget for the upcoming month. You’re pumped as you scan through your expected income and divide it up into neat little categories, including a large chunk reserved for savings, and another to pay ahead on your student loans.
You get up feeling relieved, and filled with hope and anticipation that this is the month where everything will come together financially. And then the dream comes crashing down…
Five days into the month, you realize you’ve already eaten out three times and have blown your entire month’s dining budget to pieces.
Mid-month, your microwave breaks and you shell out $100 to buy a new one immediately (after all, who can live without a microwave? Side note – I did, for 6 months, without any problems).
To top things off, you make several out-of-town trips and go over-budget on gasoline, you buy a few expensive books you don’t even have a category to plan for, and you celebrate two friends’ birthdays and shower both with decently expensive gifts.
You end the month dejected, frustrated, and depressed, and start seeking the newest and coolest personal finance manager that will help you fix all of your problems – next month…It doesn’t have to be like this.
Fixing The Budget Nightmare
I attribute budget failure to a pretty short list of items that, with a bit of resolve, all have a reasonable fix. Here is my list of ten reasons why I’ve found my own budgets of the past have failed:
- Not accounting for irregular expenses. Not all expenses occur monthly. Many, like certain types of insurance, car registration, veterinary fees, medical expenses, and others occur at random throughout the year. It’s important to average out and account for these when creating a budget that won’t crack. Read about using a sinking fund at the Frugal Dad.
- Inability to keep up with tracking. If you make so many purchases each day that you lose track of the receipts and have no idea what the charges on your credit card are, you may need to re-think your strategy. Waiting to track your budget until transactions clear the bank may spell disaster (for example, transactions from Friday may not even appear until the middle of the following week!). Keep on top of your spending to see an accurate picture.
- Unrealistic expectations. While it may look good on paper, can you realistically expect to go from spending $500 a month on eating out to $0 with the click of a mouse? Take baby steps and adjust your budget using small steering motions, rather than rocking the boat all at once. Lifestyle adjustments are easier without abrupt changes.
- Frustration with failure. It’s easy to get off track when your budget does. However, falling off is an unavoidable part of the process and to be expected. Rather than beating yourself up for making mistakes, look at why the budget is failing and make corrections.
- Unplanned expenses. Like irregular expenses, unplanned expenses occur throughout the year, but with even more unpredictability. They can sneak up when least expected, and can also attack in groups. Careful planning by averaging out yearly expenses and a good emergency fund can adequately protect you from these.
- Using the wrong tools. When your needs or in-grown habits don’t correlate well with your budgeting software, no amount of effort will yield the results you want. The best way to discover what works for you is to try different services and analyze what features are most important.
- Using a “bad fit” budget. A wide-scope budget that tracks 5 major categories may not be a good fit for a detail-oriented person that tracks every penny. Likewise, 40 categories will only frustrate someone who likes to see the big picture.
- Getting ahead of yourself. If you have a budget surplus mid-month, that’s great! But don’t get ahead of yourself and commit your income through the end of the month without knowing what the rest of that time frame will bring. Use a surplus as an extra cushion in case of unexpected expenses, and save it if things go well.
- Being too detached or too detailed. Setting and forgetting is for turkeys, not budgets. You should be intimately involved on a regular basis to make sure that things are on target. On the other extreme, checking your Mint account every 30 minutes to make sure nothing new has posted will quickly give you budget burn-out.
- Not leaving any wiggle room. Wiggle room is important, not only on a crowded bus, but also in your budget. Even with planning for irregular and unplanned expenses, setting up a budget that balances out is almost asking for failure. The smallest expense over and above the budget will immediately put it in the red, and this will be a big blow to your self-confidence. Leave a percentage of your income un-allocated until the end of the month. Chances are, one of your categories will appreciate the extra help.
While I’m sure there are other reasons for budget disasters, I feel pretty confident that these ten can address many of the issues regular people like you and me face when trying to resolve a limited income with what feels like ever-increasing expenses.
Analyze your own budget mistakes, and see if you’ve committed one of these critical errors. Then take steps to correct the problem and start on your way to fiscal balance.
- Fiscal Fizzle was featured in the 197th Edition of the Carnival of Personal Finance (thanks to Four Pillars for organizing the carnival this week).
- My article on leveraging your wedding funds was featured in the 170th Edition of the Festival of Frugality, hosted this week by Money Ning.
- Financial Fellow talks about how he sold his home for a profit in this market.
Photo by Muffet