When you try to create a budget you learn very quickly how hard it can be to stick to it. When I first started creating budgets for myself I was always failing and it seemed like such an uphill battle and a struggle to try and make ends meet. I always blamed myself for not being able to stick to the budget, it got so bad I came to hate and dread budgets and the very idea of looking over my finances would make me sick. I realize now that the problem wasn’t me it’s just that I didn’t know how to budget properly. My regular expenses would always go over and other expenses would seemingly come out of thin air and take me by surprise. Looking back over the years I began to see a pattern and here are the top 5 reasons why every budget I tried would fail.
1. Failure To Prioritize Expenses
At the beginning I didn’t take the time when creating a budget to go through and categorize all my expenses. I would just lump everything together as the same priority and wouldn’t take the time to analyze them all. If I had I would have realized many areas that were wasteful and I could cut back on and reallocate that money to other more important areas where I wanted to spend my money. The way I always prioritize my money is a cross reference between due dates and a hierarchy of needs. I lump my bills into yearly, quarterly, monthly, weekly and discretionary expenses then analyze by needs. I always pay myself first so before I prioritize that payment to Visa or Mastercard I make sure that I have the bare minimums to cover food, shelter, gas, electric, water and then move on to car and gasoline, etc.. Always pay the most important things first.
2. Failure To Create A Realistic Budget
Part of the initial analysis is to allocate your money into the different funding buckets or envelopes or categories depending on which budgeting method you are using. This is where finding out where I’m being wasteful would come in really handy because I could never get the allocation right. I didn’t fully understand how much money I was spending and therefore it was impossible to accurately allocate. I have a vivid memory of budgeting for myself $140 for food from my paycheck (essentially $70 per week in groceries) I remember my first trip to the grocery store and spending $69 and feeling really proud of myself. I also remember the following week when I went to the market and spent $66 and being ecstatic at the idea of coming in under budget. Imagine my shock when I went over my finances later to see that I had over spent by $30. I had completely forgotten that mid-week I made a quick stop into a different store to grab a few extra things I needed. That stop wasn’t part of my normal grocery run so I somehow overlooked it and blew through my budget without even knowing it. You need to make a budget that is realistic that you can keep and at the same time cuts out any and all waste.
3. Failure To Plan For The Unexpected
Life happens and last minute emergencies will creep into our lives, it’s essential that we have some sort of emergency cushion in our budget to deal with these kinds of things. The car will break down, you’ll get a flat tire, unexpected medical or veterinary bills will pop up; these things will happen and you should be prepared. In the past when the car would die I would be faced with 2 stressful situations: a financial emergency – I didn’t have the money to fix the car – and an automotive emergency my car is dead, how am I going fix it, how am I going to get where I need to go, how am I going to get my car to the shop.
4. Failure To Include Quarterly Or Annual Expenses
I would always and I mean always miss at least one bill or expense that would come around cyclically. By that I mean a bill that wasn’t part of my regular routine like a monthly car payment or utility bill. Cyclical expenses are those that come around once a quarter or maybe once a year. One I would always forget to plan for would be my car registration, every year it would sneak up on me and I would be left scrambling to find cash to pay it. Some other less obvious cyclical expenses would be money for birthdays, Christmas or anniversaries. You know these expenses are coming up and you have a whole year to plan and prepare for them but so often we forget to include these kinds of things into our budget allocations.
5. Spending More Money Than You Make
This of course is the classic problem when creating any budget especially if you use credit cards on a regular basis. There was a point in my life when I was spending more than I made and I didn’t even realize it. This is where your analysis needs to come and you start eliminating all the extra expenses and all your waste. When you accurately prioritize your expenses and you run out of extra cash you know that at least the most important expenses have been covered and your next priority is making more money.
Those were my 5 biggest budgeting mistakes I had to learn the hard way how to overcome them and start building proper budgets.