There are a couple reasons I think. First, I think many people think a budget will keep them from having fun. The truth is really just the opposite. When seen properly, the budget is really the tool that allows you to accomplish the things that are most important to you. We each have a limited amount of money available to us each month. When we do a budget we are simply deciding on purpose at the start of the month how we will spend the dollars we have. It is really about prioritizing the things that matter most to us. So you see we need to flip our thinking upside down. It is the budget that allows us to do what matters most.
Secondly, I think many people don’t budget because they tried to budget at one time or another and it was an epic failure. So they decided that budgets aren’t for them. Maybe some ultra organized people can do it, but not the average person.
Well, it doesn’t have to be that way. In fact if you want to experience success financially, I would submit that you have to have a budget. John Maxwell says that a budget is simply telling your money where to go instead of wondering where it went. Without a plan, you’ll never get ahead.
So what are the keys to a successful budget?
On paper every month.
It needs to be written down: whether that means handwritten on paper, a spreadsheet, or some other budgeting tool, doesn’t matter. The point is it needs to be more than some vague notion floating in your head. You need to sit down before the month begins and spend every dollar on paper.
Each month is different
The second point is that you must do a separate budget every month. Why? Because every month is different! Sure parts of the budget will be the same from month to month. Your mortgage payment or your rent is probably the same every month. But there will be things that are different from month to month. That birthday present for Aunt Sally. School fees for your kids. Maintenance on your vehicles. There are lots of expenses that occur only occasionally. I believe many people fail at budgeting because they try to create the perfect budget that will work for all eternity (or at least for the coming year.) Doesn’t work. That’s a fairy tale. Truth is, every month is different.
Come to an agreement
If you are married, it is critical that both spouses come together and agree on the budget. Probably one spouse is more detail oriented and is better at creating the budget. That’s fine. But once it is created then you need to both come together and come to an agreement. Once you do then that budget becomes a contract that you cannot break.
If you are single it is highly advisable that you have an accountability partner who can help you stay on track. You should meet with your accountability partner to discuss your budget.
Change it if necessary.
The budget is a contract. That said sometimes (often times when you are first getting started) things come up that were unanticipated and smash your budget. That’s ok. It means you need to make some adjustments though. Since you are using a zero-based budget (Spending every dollar on paper before the month starts) you simply need to readjust. If the car breaks down and it will cost $100 to repair and that wasn’t in the budget, then you need to take $100 out from somewhere else. Maybe we take $50 out of the entertainment category and $50 off our debt repayment for example. You just have to make sure the end result brings you back to zero. And most importantly if you are married you need to make sure your spouse is in agreement with what you decide.
Must be realistic.
Whatever you choose for your categories must be realistic. This is another place where people get themselves into trouble. Budgeting $100 a month for a groceries for a family of 6 probably isn’t going to work. Not budgeting anything for car repairs will get you into trouble because eventually your car will break. You have to be realistic about what you budget or you are guaranteed to fail.
It’s ok to be lousy
If you haven’t ever budgeted before, it’s ok if the first month is a bit of a disaster. The second month will probably be too, though it will probably be a little better than the first month. The third month will be a little better still. And so on until the budget eventually becomes routine. Just remember the first time you tried to ride a bike probably wasn’t very pretty. You fell. But you got up and tried again. And again. And again. Until eventually it got to where you could do it almost without thinking.
My last tip is I highly encourage you to use cash in envelopes for certain categories. When my wife and I started, we used envelopes for just three categories – groceries, entertainment, and clothing. We were fairly careful shoppers and I resisted using envelopes for a long time. I was certain that we didn’t buy anything with our debit card that we wouldn’t have bought with cash. I can tell you I was 100% wrong. When you use cash there are things you won’t buy and you really won’t miss them. There is tremendous power in looking in that envelope and seeing a diminishing supply of cash. It will change your buying habits.
Budget for your dreams
You can do it. Budgeting isn’t that hard. It’s all about having a plan and using that plan to make sure you are spending your money on what is most important to you. Sure it may be a little rocky the first few months if you have never done a budget before. But stick with it. Every month will get easier. And soon you will find you have the money to achieve the things you dream about.
If you aren’t budgeting today, what is the #1 reason that you don’t do a budget?
Photo credit: 401(K) 2013 (creative commons)