3 Reasons Your Budget Isn’t Working

How you manage your money plays an integral part in your overall financial health. This is true whether you are rich or poor. Obviously if you have less money to work with, budgeting can be a challenge, however even those who have more money to work with can make mistakes managing their cash. The key to keeping your finances on the right track is creating and sticking to a budget that works. It is not enough to simply have a budget but rather one that reflects your current financial situation. Otherwise, you will likely find yourself frustrated when the numbers don’t match up each month. Here we look at three reasons many budgets don’t work and how you can avoid making common budget blunders.

• Budgets based on wishful thinking- If you create a budget based on how you hope to spend your money, you are doomed to be off the mark each month. The point of a budget is not to deprive yourself of all things that bring you pleasure but rather to organize your finances in a way that a specific amount of money is allocated toward specific categories each month. In order to get your budget on track or at least heading in the right direction you must be realistic in the amount of money available to pay bills and how much you need for living expenses. By convincing yourself you can live on $30 per week while allocating the rest of your income toward bills, expenses and savings you will likely find come up short. Avoid making an unrealistic budget or you will find yourself getting frustrated and giving up on the process all together.

• Budgets set in stone- A budget is not something you can “set and forget”. For most of us there are reoccurring bills that are the same or close to the same amount each month. This helps in creating a realistic budget but only if we allow room for changes. There are unexpected expenses that pop up and bills that are paid quarterly or semi-annually. Your income and expenses vary each month, therefore your budget must be tweaked or adjusted to accommodate these changes. You should also review your budget from the prior month to see how close you came to hitting the mark and what changes can be made to get closer to your desired numbers.

• Budgets that allow leftover money- It is not uncommon for people to create a budget to cover all bills and living expenses without allocating a place for “leftover” money. If you don’t have a plan for whatever cash is leftover after taking care of your responsibilities you are guaranteed to spend that money somewhere, often in places that are wasteful. Create a section of your budget to cover cash expenses for the week and then create a category for savings or investment contributions. By doing this you are less likely to simply spend leftover cash that could be of better use elsewhere in your budget.

By creating and sticking to a budget that has been designed to reflect your financial situation you are more likely to reach your financial goals. Without a working budget you take the chance of making mistakes that could end up costing you in the long run.