While I am not even close to being in the top one percent that we all hear of, I’ve made good financial decisions and am happy with the nest egg my wife and I have been able to build. We are both responsible with our budget and are well on our way to meeting our financial goals.
But for me, it wasn’t always that way. I started my professional life a financial basket case. I worked hard and saved money but just could not seem to keep a budget or hold on to my money for more than a year. Being a financial reporting analyst for a large insurance firm, my lack of financial stability was a big embarrassment and I did everything I could to hide the shame.
(Related – Why personal budget often fails)
My financial nightmare went on for a couple of years before finally, tired of working two and sometimes three jobs but not getting anywhere, I opened up to a close friend. I laid it all on the table, how I worked and saved but then couldn’t seem to keep my budget and would end up spending down my savings.
I was shocked to hear that he was struggling with some of the same issues. After that first conversation, and many years afterwards talking with others about personal finances, I’ve realized that most people share four common pitfalls to budgeting.
Tackle those four pitfalls and you are well on your way to keeping a budget and reaching your financial goals.
1) Focus on Your Priorities
Planning out your life’s finances is about the long-term picture. That long-term picture usually includes four general priorities like buying a house, saving for retirement, paying for your children’s education and keeping a financial cushion for emergencies.
(For more reading – How to prioritize saving goals)
Getting side-tracked by short-term goals that really don’t matter is one of the easiest ways to complicate your personal finances. It’s fine to plan for that annual family vacation or the new car you want to buy but don’t do it at the expense of saving for what really matters.
2) Be Prepared for Setbacks
Even the most astute financial planners among us run into a snag once in a while. From car troubles to medical expenses and even the dreaded job loss, things happen that are unforeseen and many times unavoidable. What you do when those setbacks hit will determine the long-term success of your financial future.
Part of dealing with a budget setback is having enough set aside in case of emergency. I used to tell people that six months of expenses was more than enough but the depth of the recent financial crisis has me wondering if eight months or a year of expenses should be held in a savings account. Having a diversified investment portfolio so not all of your wealth is destroyed in the bursting of an investment bubble is also a good way to limit the size of a setback to your finances.
Probably the most important part of dealing with setbacks is just to acknowledge that they happen and not to get too disillusioned when they do. I’ve seen a lot of people throw their hands up and ditch their budgets at the first sign of financial difficulty. Reassess your plans and resolve to get back on track.
3) Have a Support System
Talking with a friend about my own financial problems is what put my life on track and helped me to learn how to manage my finances. We still talk regularly about ways to reach our financial goals and confront challenges.
Having a support system and someone to talk with is critical to your financial success and something that I recommend to everyone. We are hard-wired from birth with some behavioral traits that often lead to poor financial decisions.
We have a hard time recognizing them in ourselves but can point them out in others. A friend may be able to tell you what you’re doing wrong and offer support when the going gets rough.
I’ve known people that took it a step further and created a financial discussion group. They meet once a month to talk about their budgets and goals along with any financial roadblocks they’ve encountered.
4) Live for Today
A lot of my problem during my 20s was that I did not set money aside to just have fun. I worked my butt off and saved every dime for some lofty goals that were decades away. Not being able to look forward to anything but work and sacrifice led to burnout and binge spending.
Life is too short to spend every waking hour planning for the future. Budget and save for your priorities but don’t forget to enjoy life and the fruits of your labor. Budgeting a certain amount each month to treat yourself will help make the sacrifice of saving easier and you won’t feel the need to splurge.
There’s no one-size-fits-all to personal finance and budgeting so your own financial story may include a few other hurdles. Cover the big four reasons above and talk to your financial support system about other challenges you come across.
About the Author: Joseph Hogue manages PeerFinance.com, a blog where people share their stories of personal finance challenges and success. There’s no one-size-fits-all solution to meeting your financial goals but you’ll find a lot of similarities in others’ stories and a lot of ideas that will help you get through your own challenges.