Budgets – the foundation of every financial plan and the word that has a tendency to make us run for the hills. When people think of a budget, it’s easy to be scared off by the confinement of it – now you’ve drawn up a budget, there’s no room for fun or social plans is there!? Wrong!
Not too long ago I wrote why personal budgets often fail. Budget failure is a common outcome. Many of my friends faced the similar situation, going over a budget by as early as mid month. Often it’s not your spending habit but, your budget that was wrong in such situation.
If done properly and realistically, a good budget can be a gateway of opportunity. It doesn’t matter if you’re earning hundreds of thousands of dollars or just scraping through, the benefits of saving and careful budgeting is widespread for all walks of life.
But, it’s not always easy to stick to a budget. It requires more than a piece of paper and documented figures – it requires discipline, consistency, evaluation and realistic, clear goals. Sometimes it’s hard to avoid the common money planning problems and before you know it, you’re back to square one again.
Don’t let this put you off though! We check out some budgeting problems and how to avoid being the victim, and get you one step closer to achievable goals and managed finances.
Here’s the list of 7 budgeting problems and what to do to avoid them
1. Not setting a proper, realistic budget
It seems obvious, but many of us can be easily trapped into thinking we’ve set up a budget when we haven’t. Maybe you’re planning for an end-of-year trip and decided to budget money every month for it. You’ve taken into account how much you earn, maybe even how much your partner earns and have a rough idea on what you spend each week.
A budget isn’t just about throwing together a few figures though and the big expenses, it takes everything into account from that guiltless coffee you brought this morning to the parking fine that’s been sitting in your glove box for the last 3 months. The more comprehensive, the better you will be on track financially.
Do: Provide as much information as possible. The more of those ‘little things’ you include the better the outcome will be. Make sure you’re realistic about your financial goals and what expenditures you need to cut down on. If you’re honest with yourself from the start, you will be on a much safer track.
2. Not preparing for emergencies
A good budget will take into account that not everything goes to plan. Car troubles, health issues, or unable to work all seem to happen at the worst possible times so incorporating an emergency fund into your overall budget will prepare you for the issues you don’t want to, but have to, deal with. It doesn’t have to be a huge amount, but adding a little extra aside that’s strictly for moments like this will definitely ease the pressure.
Do: Give your credit card a break! There is nothing worse that maxing out your credit card when unexpected emergencies arise. Instead, gradually building an emergency fund has huge benefit, it can help ease the pressure without racking up the credit card bill and putting more financial strain on you.
3. Being inflexible
Whilst saving money should be a priority for everyone, you still want to be flexible and balanced. If you’re confined to a strict budget that leaves no room to treat yourself on occasions, you’re less likely to stick to a budget and splurge out more from being too restricted. It doesn’t have to be harsh or a sentence for you to serve as this can lead to unhealthy spending habits.
Do: Remember its OK to spend money every now and then on yourself. You don’t want to be super cheap and too restricted – give yourself a little leeway to breath.
4. Going too fast, too soon
Let’s face it, we can all get impatient at times – we want it all and we want it now! That dream home you’re planning on building, that holiday that seems to get pushed aside each year. Maybe it’s that new car, fancy furniture or kings size bed, whatever it is it’s important you recognize your financial limitations (yes, we all have them!) before you acquire too much, too fast. It’s easy to get overloaded with the non-essentials but this is the ground breaker for excessive debt.
Do: Recognize your limitations, write them out if needed and prioritize what you want or need now, and what can wait longer. Money is for protection, so make sure you’re financially savvy to alleviate the money miseries.
5. No budget evaluation
A good plan need to be evaluated on a regular basis and a budget is no different. Without evaluations you’re not accessing what works and what doesn’t, and if you don’t know what’s not working – how is it going to get any better?
Do: Review your budget monthly to make sure you’re still on track and the plan is working for your income, lifestyle and goals.
6. Getting too complex
Budgeting tends to scare people off because of its complexity. There are oodles amounts of paper work and sometimes it can all seem like too much work. But, and effective budget doesn’t have to be labor intensive. Yes, you will need the paper work to help guide a budget specific for your needs but don’t get too complex with it.
Do: Keep it simple. Start with a basic budget and add details as you go. Once you have started your plan and you can review what works for you and what doesn’t, you can adapt your finances as you go.
7. Lacking a shopping schedule
Whether it’s for Christmas presents, yourself or the fortnightly grocery run lacking a shopping schedule can lead to impulse purchases or items you simply don’t need. Have a plan of attack before you tackle the shops!
Do: Shop once a week or once a fortnight to keep your pantry and fridge full. This will help keep your household budget intact – if you think skipping a week of grocery shopping ‘saves money’ think again – the next week you go you end up paying twice as much to make up for it so keep a regular schedule to stay on top of things.
Readers, how are you handling occasional budgeting problems in your life?