Why Is My Budget Blowing Up
So, you have created a budget but are finding it next to impossible to stick to it. You may be thinking that you are doomed to drift aimlessly, never being able to get your finances under control. But before you throw in the towel, let’s take a look at the Prime Causes of Budget Failure and see if any of these apply to you. Just keep in mind, there is no magic formula for making a budget work. Budgeting is hard and worrying about money is stressful but some of the pain can be lessened by avoiding some really common budgeting mistakes. Here goes…
#1 Not Creating Rules for Saving or Spending
Rules must be put in place to provide structure for your budget. Here are a few that are worth creating:
a.If you are budgeting money with another person, create a limit that can be spent on a purchase without talking about it. As an example – anything over $75 requires agreement from both people before purchasing.
b.Extra money – such as gifts, winnings or overtime should be split at 50% going to savings/debt reduction and 50% toward something fun.
c. Do not buy on credit what you cannot afford to pay off in full at the end of the month.
#2 Not Having a Quick Cash Emergency Fund of at least $1000
Life happens and emergencies are part of it. Flat tires, stolen wallets and lost car keys can usually be handled for less than $1000. It is not a matter of if, but when. Have the cash ready!
#3 Not Having at Least Three to Six Months Living Expenses in Savings
You need an adequate savings to fund your expenses in case of job loss or unpaid leave from your source of income. In a two income household, the fund should cover at least three months living expenses. This is assuming one income is still being received. In the case where both incomes may be at risk, six months worth of living expenses should be available. If you have expenses of $4000 per month, you should have $12,000 – $24,000 in your Emergency Living Expense Fund. After you have saved the $1,000 for your Quick Cash Emergency Fund, start putting money into an Emergency Living Expense Fund. It takes time for most people to save this amount, so get started right away!
#4 Buying on Credit (Or buying what you cannot afford)
Only buy on credit what you have the money to pay off at the end of the month. Carrying a balance on a credit card and making only the minimum payments will cost you big money in the end. Let’s look at an example of an average new kitchen dishwasher that was purchased on credit:
Purchase on Credit: $600.00
Interest rate: 11.00%
Minimum payment 4.00%
Monthly Payment $24.00
Balance Payoff 43 months
Total payments $719.80
#5 Not Tracking Your Spending on at Least a Weekly Basis
Tracking your spending is one of the most important things to do when you are sticking to a budget. It is easy to go over your budget if you are not logging and reviewing your expenses throughout the month. This can help you keep better tabs on where your money is going and to keep from overspending. *Remember, tracking is not the same thing as budgeting. Tracking is what you do when the money is already spent. Budgeting is looking for patterns in your spending to see where your income needs to be allocated. The best policy is to log your expenses as they come and as you pay your monthly debts to track how the actual expense compares to the anticipated. This will allow for adjustments to your monthly budget to be made right away.
Example: A budget was set for $200 per month for electricity and $40 for Gas. The actual Electric Bill was $185, and the Gas Bill was $42. The budget now has a $15.00 electric surplus and -$2.00 deficit for the Gas. To allow for the $2 additional needed to cover the Gas Bill, you could use part of the $15.oo Electric surplus, which then would be reduced to a surplus of $13.00.
Because planned expenses change, the smart budget changes too. As the month progresses, budget allotments can be added and subtracted to keep the budget balanced. Any of the budget not spent by months end could be used for additional savings or debt reduction.
#6 Setting a Budget That Has No Flexibility
Avoid creating a budget that is too strict, you may be setting your self up for failure. Expenses are likely to change from month to month, such as months with holidays or birthdays. It is crucial to your maintaining a positive perspective on your budget to accommodate for fluctuations. Plan to spend more during the months you entertain or during the holiday season, and allow for this in your planning.
#7 Incorrectly Accounting Your Expenses
Have you accounted for all of your monthly expenses? A common error is not adding in yearly expenses such as property taxes or HOA dues. The best way to account for these expenses is to budget 1/12 of the expense monthly. That way, when the payment comes due, you have set aside the money in your budget already. Another common error is forgetting to account for home and car deferred maintenance amd repairs. It is expected that repairs will be needed at some point, so they should be considered a regular monthly expense. How about any pets? Is there a place in your budget for pet supplies, emergency veterinary expenses and medication? Budgeting each month for these expenses will prevent feeling stress and panic when the inevitable happens. With an accurate budget, you will be prepared already!
A budget can be a powerful tool to establish your priorities and give you control over your spending. Budgets are fluid so change yours as new income and expenses arise, or you find that your previous planning wasn’t accurate. Work to create a budget that fits your lifestyle and gives you a sense of control. Be creative and allow yourself a treat once in a while. After all, it is your money!
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Till Next Time – Christine
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