Did you know that 40% of Americans do not use a budget at all according to bankrate.com but what about the other 60%? Is having a budget on paper or on your computer spreadsheet a guarantee of success? There are hundreds of reasons why your budget will fail. Lets focus on the real everyday reasons and pitfalls that cause budgets to fail.
Writing out a budget is not even half the battle, without understanding the mathematical limitations and emotional aspects of spending money, along with all the hidden spending harbingers, your budget can still fail. Without a fundamental and thorough understanding of how a budget works, and ways to identify and change bad choices that lead to spending more money than you have coming in your best intentions will fail. Lets take a look at some of the pitfalls.
- You based your budget on gross income
- You made the budget unrealistic or impossible
- You lack discipline and control
- You have not built in a cushion, or
- You just have a bad attitude towards the whole process
First, take a moment and think what you want to accomplish financially; this year; next year; in five years; ten. Once you have written down some goals, ask yourself where you want to be in your career; this year; next year, in five years; ten. Only after visualizing this future can you create a strong realistic budget today. Maybe your goal is to own a home, buy a car, save for a dream trip, or just plan for retirement and live comfortably. Whatever your goals are, write them down, it will help you visualize them.
GROSS VS NET INCOME
Gross income is a wonderful number, it can be real high, and a source of pride to tell your folks, but you should not base your budget on your gross income, you have to account for taxes, insurance, retirement accounts. All of these can take a huge amount of money out of your budget right out of the gate each month.
YOU ARE UNREALISTIC
Why make a budget if you are not going to be honest and realistic about the figures that you put in there. Don’t put in your budget $100 for gasoline when you know you spend $300, you will exceed your budget. The whole goal of a budget, aside from the obvious, is to gain an idea of where you spend your money on a monthly basis, and where to trim off excess expenses. You must look at every penny that you have coming into your house and every penny that goes out that money must be accounted for. If you have a food budget, include in that, lunches out, dinners out. These are the hidden things that can sink a budget.
YOU LACK DISCIPLINE AND CONTROL
When your pay check hits your account you feel excitement and freedom, and you run right out and purchase that item that you have been craving. Sound familiar? Of course, we all have done it, but it will hurt your budget, and will cause you to fall behind in other bills. This will result in more expenses, late fees, unpaid bills, paying with a credit card to make ends meet.
NO BUILT IN CUSHION
Americans are notoriously bad savers. Three in ten Americans have no savings at all according to nbcnews based on a Bankrate.com survey. This can directly impact a monthly budget and cause failure. Unexpected expenses can cause a great hardship on your budget, causing you to borrow more money to make ends meet putting your further and further behind.
Realistically you will need some time to build a real cushion, and don’t expect to have one right off the bat, but hey, that is why you are creating a budget, to help build a cushion, that emergency fund. Even if it is only a few dollars every month, be faithful, and put that money away, and forget about it, in time it will build up to a respectable amount.
A BAD ATTITUDE
Let’s face it, you may just have a bad attitude towards the whole thing, and negativity can kill your budget. Nothing is easy, and facing your financial picture can be one of the worst experiences there is. Who wants to look at those numbers when you cannot do anything about them. That is the wrong attitude, you need to be in complete control of your money, and your emotions. You must believe that you can follow your budget, and that as time passes you will get used to living by one and that you will be able to change and grow your budget as your money increases over time.
One final thought, don’t quit, make sure you stick to your plan, and follow through. If it were easy everyone would have a budget, but not having one is the true failure.