Using a budget is a prerequisite for avoiding debt and living within your means. But have you tried making a budget and found that it doesn’t work for you? Do you always manage to spend more than you budgeted for?
Instead of giving up, consider five common reasons your budget isn’t working.
1. You are budgeting without a goal
Much like dieting, budgeting without a goal tends to end in failure, according to Steve Crawford, owner of Experience Wealth and Victorian director of the Association of Financial Advisers: “Budgeting is essentially imposing a restriction on yourself on how you spend money. Whether it’s a small or big restriction, the brain is more likely to accept it if you are giving yourself something in return – the goal.”
The goal could be a new car, a holiday or saving a deposit for a house. Anything, really. Calculate how much you need to save each month to achieve your goal within the required timeline, and adjust your spending and saving to accomplish this goal.
2. You left items out
It’s easy to forget some of your expenses, particularly irregular items such as haircuts, birthday gifts or impulse buys. In this case, make sure you continue to adjust items on your budget until it is a realistic portrayal of all your income and expenses. If you are using a spreadsheet, insert notes to ensure you don’t forget the same things in future budgets.
3. You are not tracking the results
Have you diligently worked out a budget but are failing to track your actual spending? This is not unusual, Crawford says: “A lot of people set the budget but don’t track it – so how are you going to know if you’re on track to meet your goal?”
He recommends downloading one of the many budgeting apps available online. You simply input your daily expenses and the app does the rest, showing you whether you are sticking to the budget or coming perilously close to blowing it – if you are spending more than you should, you’ll know early enough to be able to rein in your spending.
4. Your banking habits make it difficult
Crawford recommends arranging your bank accounts to reflect your budgeting, with separate accounts for living expenses (rent or home loan, utilities and the like), another for lifestyle expenses and a third for savings.
“This way you can see what you have available in each bucket and spend only what you have,” he says. “And don’t spend lifestyle money out of the living expenses account.”
5. You are not accountable
Just as some people find it hard to commit to a fitness regime without a personal trainer who holds them accountable, perhaps you may need some extra motivation to stick to your budget. You can gain encouragement from a personal adviser, or a colleague or friend.
“If you are doing it all yourself, you are emotionally biased to spend,” Crawford says, whereas an “accountability buddy” can hold you back. Research backs this up – a study by the Dominican University of California found that people who write down their goals and share them with a friend are on average 33 percent more likely to accomplish their goals than those who simply set goals.