Many attempts at budgeting end in frustration because the paycheck comes up short before the end of the month or it only barely lasts until the next pay day. The high failure rate of budgeting in general has given it a bad rap. Budgets are looked upon at best, as a waste of time and effort because the expected result is a collapse of all the abstract measures that are temporarily erected until the guilt of the failed budget fades and they can be openly removed.
However, this kind of attitude breeds failure. A budget should be an earnest attempt to change spending habits permanently for the better, or lasting results cannot be expected. Take a look at the top 5 reasons why personal budgets fail.
1. Unrealistic Budget Expectations
A budget is not a magic formula. It will not pull $10,000 of savings from an income of $5,000. This may seem like an exaggerated example, but for some, setting up a budget means that they will suddenly have a lot of excess funds to move around. The aim of budgeting is to ensure that your income and expenses are distributed for the maximum benefit, so you can afford a comfortable lifestyle while providing for other goals. The savings targets set must therefore be realistic for your income and fixed expenditure.
2. No Planning for Irregular Expenses
To be effective a budget must include all types of spending. It can be easy to forget those expenses that crop up once a year, like medical or car insurance payments and membership fees, but it is important to cover all your angles when preparing your budget to avoid being caught off-guard.
3. No Slack Built in to the Budget
Another reason budgets fail is because there is absolutely no room to breathe. If your budget maps out spending down to the last cent you will be in severe trouble if the cost of anything increases above your estimate, or if something comes up unexpectedly. A budget should leave some excess funds to take care of incidentals or just to fall back on in case you made a poor decision along the way.
4. No Measures to Automate Payments or Account Movements
Budgets need to be automated to some degree to make success more plausible. A lack of time or discipline can seriously sabotage the best intentions to have money transferred from your current account to a savings account or to pay credit cards or bills on time. These small slip ups can cause cracks in the foundation of any budget and over time will result in the collapse of the entire structure.
5. Budgets are Not Tied to Personal Goals
Budgets should be linked to goals to make them effective. Saving is more difficult when it seems unconnected to real life desires. It is harder to put aside $1000 because saving is a good thing, than it is to put aside the same $1000 if there is a reward in mind. This could be a house, a car or even a vacation. Budgeted savings have a better chance of success if they are identified for specific purposes; from retirement and education to housing and entertainment.
If you identify your mistakes in these reasons for failure, take steps to correct them today and your next budget will be much more successful.