According to a study, up to 41% of Americans keep track of their finances with a budget In other words, 59% of people don’t! A stunning 3 out of 5 just spend their money without any plan every month. They have no monetary goal or set limits.
But this problem is easy to fix.
Budgets work. If they have not worked in the past, that doesn’t mean they never will. There’s probably a reason why budgeting has not worked for you in the past.
Here are the most common problems people have with their budgets and how to fix them:
1. You created your budget with bad information
Bills change and basing information off your mental estimates or a month or two of data is a sure way to wind up with a nasty surprise.
Instead, take all the statements from the last year or even the last two years and look at your regular expenses. Then, for all regular expenses that aren’t fixed, create an average. Sure, you’ll have some months that will be lower, but you’ll also have the money sitting there to pay for the months that are unexpectedly higher. Better to have too much than to be caught short.
2. Your budget is too restrictive
The word budget sounds like no fun or no life but that’s because people construct their budgets wrong. In addition to mortgage, utilities and other important categories like gas and medical costs, you must also fund your fun and social life. This means you’ve got to create categories for the things in life you enjoy.
If you strip the things you love to do away with your budget, you’ll probably not stick to it for the long term. But this then will make you feel bad about the things you enjoy, and it creates resentment for your budget. When all your bills are paid, you’re adding to savings and you still have money spare for enjoyment, then that’s something you’ll want to stick to.
3. You have no goal in mind
Have a financial goal for your budget. If you want to add smaller, additional goals fell free to do so.
4. You didn’t allow for the unexpected to happen
If you have accounted for everything you can think of, things will go well. But you need allowances for the things you can not predict, too. You might need a car repair, the house to be fixed or even lose your job unexpecting. So, set up an emergency fund. Start small and add slowly until you have about 3-6 months worth of income saved.
5. Your tracking is too complicated
It’s 2020. Just about every aspect of our lives is online and available via app. There are a number of easy-to-use apps and programs you can use that will sort your transactions and file them by category for you (e.g. Mint.com).
Budgeting for your big life goals and still living comfortably day to day is possible. With a strong budget, you can make it happen.
Sven Franssen