Ok so you made a budget for 2014 as a new year resolution and it failed, or perhaps you tried but it did not work out as planed so you gave up. Most budgets that fail fail due to budget design and implementation. Sometimes we start out with a budget with the right intentions but the way we designed the budget was setting ourselves up for utter complete failure. With the exception of emergencies popping up that wreck havoc on a budget, most budget failures are due to human error. So what can you do to make your budget dreams for 2015 become a reality? I will go over several tips to making a successful budget that you can live with, tips that if you implement when creating your budget you will be setting yourself up for success.
Here are the top reasons why budgets fail and how to avoid these pitfalls:
Your budget is to frugal:
We often times set out making a budget wanting to save the maximum amount of cash to our savings, often at the expense of entertainment and day to day expenditures that make like worth living. Often times people make budgets which set expenses down to the bare minimum leaving very little wiggle room or room for living. While some can succeed at this, this pitfall causes most Americans to utterly fail at their budgets.
To prevent this from happening, use realistic numbers. Is only $50 going to fund your monthly entertainment expenses? Is $25 all you really need for dinning out? My advice is to pad your budget a little. Put aside say $100 in a category you call ” flex spending”. Your flex spending category can be used for whatever during the month. If you go over on your dinning out by $10 it comes out of the flex amount. Also go over your last 6 months of expenses, if you cannot remember them all here is your homework for the month, save every single receipt no matter how small, at the end of one month add them all up. See how much money they amounted to, organize them into categories and then go over them with a fine tooth comb and ask yourself what if anything you spent on that you could live without or cut down. For example if you had coffee out 15 times that month perhaps you could cut it down to once a week. For a budget to work you have to leave some room in it.
When making a budget often times we make very generic goals, goals that are so far reaching we loose track along the way of why we are budgeting in the first place. When this happens we start to slip up and over spend. The problem for many budgets is the lack of clear set goals, mile stones and the feeling of reward when those milestones are met along the way. Budgets are not easy, we need to see the progress in concrete terms rather than some objective that is to fluid.
The way to prevent this is to decide what the main goal is. If for example you want to buy a house you need to figure out what price range your looking for, then determine what your down payment would be, then save for that goal. But as this goal can take a long time to accomplish you can set up ” mile stones” that you celebrate such as every 20% of the way you and your spouse go out for a nice dinner out on the town to celebrate being 1/5th of the way to your shared goal. This will set into both of your minds that the goal is reachable and that you have made progress and reward the two of you for the work you’ve done to accomplish that goal. Rewarding yourself for mile stones being achieved is a way to take an abstract non physical goal and turn it into something you can see and feel in the present versus just an idea.
Your Family or significant other is not co-operating:
Many budgets fail due to one or more family members not co-operating with the budget. This is usually due to differences in opinion or the spouse not seeing the end goal. If this is the case it is time to have a family sit down, discuss your finances together, have your facts and figures handy to present. You have to make a case and you have to have figures to back it up. If your spouse is the big spender yet wants to have a house in say 3 years but as a couple your savings are no where near where they should be for the mortgage payment let alone buying points on the mortgage you need to show this with facts and hard cold numbers, and provide a solution both of you can work with.
You also need to ask your spouse his or her input on why the last budget failed. Work on finding a happy middle ground that achieves your goals together. The budget does not have to be ultra restrictive, if the two of you work together you can both plot a course to a budget that will succeed yet leave enough room to satisfy other areas in life.
The last reason budgets fail is that they often do not have emergencies factored into them. Your car can loose it’s breaks or your dog Toto might get sick, all of these things can add up quickly and kill any budget. You need to save money aside for emergencies in an emergency fund. Often when you run into a financial challenge, you make quick decisions, sometimes these include quick installment loans, payday advances, visiting a pawn shop, etc. I recommend also setting up a special saving account for this and this alone, an account that is never ever tapped into except emergencies, once money enters the account it should not be taken out except in the case of a true emergency. Devote a certain amount of money per month to this fund, it needs to be factored in, and let’s face it emergencies can, do and will happen.
If you follow this advice you should do fine on your 2015 budget efforts. Remember budgets are only as good as you create them and your willpower. It is never the budget that failed but the human behind the budget.