Yesterday, we were talking about some of the myths that people have about the budget. Continuing on the same line of discussion, today we are going to look at some of the common problems that turn a very well thought out budget plan, into a total failure. Many individuals have set out to change their financial destiny only for them to fall by the wayside because of very common mistakes that are made during the budget process. Lets look at three examples, according to JG Anderson, coming up with unrealistic figures, not taking into account the views of other family members who will be affected by the budget and (this one is a biggy) not budgeting for fun items, are some of the common problems that make a budget to fail.
Creating a budget is a fantastic first step in getting your financial situation under control, especially if you are currently having money troubles. Unfortunately, just creating a budget is no guarantee that your money situation will turn around – you need to be able to stick to it. There are many reasons why a budget may ultimately fail. Here are the three most common problems, and what you can do to overcome those problems.
1) The budget is unrealistic.
It’s very easy to come up with a budget that looks fantastic. The numbers say that you can save hundreds a month and be debt free within a year or two. That’s great – as long as the numbers are realistic!
The worst thing you can do when creating a budget is put in unrealistic numbers. It’s very easy to do this accidentally (by now realizing how much certain expenses really are, or even leaving out some expenses entirely because they are “uncommon”), but sometimes an element of wishful thinking can creep in as well. Needless to say, if the budget is unrealistic there is no way it can work. Take a few extra minutes to make sure the budget actually represents reality (even if it is an ugly reality), and you will be able to benefit from using the budget.
2) The budget doesn’t have buy-in.
If you live by yourself, setting a budget doesn’t require you to talk to anyone else. But if you have a partner or family, the worst thing you can do is suddenly turn around one day and say “you can only spend $X on this now”. At best you’ll get an argument. At worst your partner and/or family will begin to resent this new budget you’ve forced on them, and may even begin to ignore or sabotage it.
Instead of making a budget decree, it is essential that you get buy-in from others in your family when putting together your budget. Get everyone involved in looking at the figures, and working out how much money can be allocated to each area. If people know the entire situation, they will realize that you’re not just trying to ruin their fun or arbitrarily cut their money. Instead everyone can work together to better the financial situation.
3) The budget doesn’t allow fun.
When coming up with a budget, it’s very easy to scrutinize every single cent you spend and strike off every item that is some sort of luxury or “fun” item. While this can make your budgets figures look good, it is ultimately a losing situation. The budget will very quickly change from a benefit to a grindstone. When this happens, it is very easy to start spending extra money on the fun items you miss (“I’ve been good, just one little extra won’t hurt”) but aren’t in the budget. And since they aren’t in the budget, this gets you into the habit of ignoring the budget in other areas.
The solution is to ensure that any budget you create includes some money set aside just for fun. Whether it’s a meal out, money to go to the movies or just an amount you can spend guilt-free on shopping, you need to allocate this money for the fun so the budget you create can be maintained. Of course, this amount of money needs to be set like any other part of your budget, and once you set the amount you must stick to it.
Now that you are aware of the three most common reasons that a budget can fail, you are in the perfect position to ensure it doesn’t happen to you. A budget is the first step in getting control of your financial situation.