Finally, you have got on the budget train; you know its importance; you know its advantages but for some reason it seems it’s not working.
Before we dive into the reasons why most budgets don’t work having the right mindset about failure or hardship or constraints is important, this tweet by Naval Ravi perfectly captures my though on the kind of mindset we should have “There is no failure only feedback”
1. Give it time
You are most discouraged in your first few months budgeting. Getting what works for you or getting the budget right takes time, no one starts doing something as an expert, you keep getting better with every action, so keep at it.
We can cut short the learning curve by understanding your past, so pull out your account, credit card statements to understand your past, the popular advice is to pull out the last 3 months but you shouldn’t be limited to 3 months if you need more to understand your finances please do.
This record will help you understand your spending pattern and give you real numbers to work with in creating a better personalized budget, I must say here that creating a budget is not about the past but making a plan for the future.
Someone is saying I don’t have any records, give it time keep tracking your expenses daily and you will understand your spending pattern and numbers with each passing month.
2. Not Realistic
There is no nice way to say it “an unrealistic budget will fail” that is just the nature of plans (a budget is a plan). That’s why we yapped on earlier about understanding your past.
Don’t cheat and what I mean is don’t overestimate your income (common with people working for themselves) or reduce your expenses, giving you a false satisfaction of doing well
Having a realistic budget also means your expenses isn’t greater than your income
3. Not accounting for all your expenses.
In the early days of budgeting many fall into this trap when starting out, we forget some expenses like our annual expenses that won’t be due in months or not adequately considering other members of the family like spouse, kids or other dependents in creating the budget or not putting into account future expenses like that new car, phone, upcoming maintenance etc.
Setting up a sinking fund is very useful in helping you prepare for that future expense.
4. Customize your budget
Your budget is not set in stone, it’s a living document, its personal, its fluid and as such it should be customizable so don’t feel guilty as you move things around to meet your goals
5. Budgeting Approach
There are different types of budget out there such as zero based, 50/30/20, envelope e.t.c, there are also numerous templates and apps, take your time to find the best style for you and your current circumstance.
The best budgeting approach is the one that works for YOU
6. No Emergency Fund
This is a big one and I am surprised it’s at no 6 but not having an emergency fund can make or mar your budget,
Someone said “When you have an emergency fund you don’t seem to get any emergencies but when you don’t have one everything is an emergency.”
If you don’t have an emergency fund start building one because emergencies do happen but it won’t be so much of an emergency if you have a fund in an easily accessible account
7. Not being clear on your goals.
Think long term especially in personal finance, this involves having a clear goal.
- What do you want to achieve in one year, 5 years, 10 years?
- When do you want to retire?
- When do you want to resign from your job?
- When do you want to start that business?
You must think about these things and have a SMART goal. A budget is a tool or a plan to get you somewhere (your goal).
8. Execute
A plan (your budget) is actually useless if there is no execution so we must be disciplined enough to execute our plan (budget), that is the least we can do to make it successful.
I know we all like to splurge and be spontaneous and we somehow don’t associate that with a budget but a budget is actually permission to spend and with a bit of foresight we can create funds for things that matter to us and be disciplined to stay within the boundaries of the funds at our disposal.
We will also have different boundaries at different stages in our life so it’s wisdom to know where we are, not comparing ourselves with others and work towards increasing that boundary
9. Track and Review
As a follow up to the earlier point, execution must be tracked and reviewed against the plan. You don’t create a plan and expect it to work itself. You work the plan or better put you make the plan work.
If asked if you want the plan (budget) to work? Am sure the answer will be a resounding yes, the only way is to track your spending daily and periodically review against the plan and depending on how far along you are on the budget train determines how frequent your review should be.
If you are new to budget, reviews should be at least weekly but after a few months you can do it twice a month at the middle and end of a month.
If you have a partner it’s best to do it together, also pick a specific date, time and place and lastly have fun with it
10. Fun and generosity
We now have a lofty goal and we are rearing to go for it but pause and ensure you have space in your budget for fun and generosity, a top tip for fun is to link it to milestones in your life and goals.
Budgeting for 3 months is a milestone you should celebrate, same for that anniversary and having fun doesn’t have to involve spending money but if it does you shouldn’t fill guilty just budget for it
On the subject of giving I will only say “life is about giving, giving with the right mindset also does something to us that this blog post can’t explain till you try it”.
Give without expecting anything in return, give from the place of love and responsibility.
I hope this has been helpful, check out other blog posts