1. Don’t do one
OK, this one may be a little obvious, but the first way to ensure you will never successfully have a budget is to never even try.
A 2013 Gallup poll showed that more than 2/3’s of Americans do not live on a budget. I think if you asked most people, they would have at least a vague sense that they probably should be doing a budget. They probably would agree that a budget might help them achieve their financial goals faster. But the truth is most people don’t do it.
2. Don’t write it down
Some folks say they have a budget. Well sort of. I mean I kind of know in my head what my bills are each month. So that counts, right?
If you don’t have it written down, you don’t really have a budget. You’ll forget things and underestimate others. The only way to really take control of your financial situation is to have a written budget you follow each month. How you create it doesn’t matter. You can use software like Quicken, internet services like Mint or You Need A Budget, your own spreadsheet, or plain old paper and pencil.
3. Use the checkbook method
If there is still money available in my checking account, it must be ok to spend it. I am sorry to admit for many years this was my basic form of budget.
Parkinson’s Law says that work will expand to fill the amount of time you give it. The same principle holds true for your bank account. I couldn’t understand why I could never seem to make any progress on my goals, but my problem was when my budgetary decisions were based on how much money was left in my account there was always something that I needed to purchase.
By deciding at the beginning of the month exactly how you intend to spend every dollar that comes in for the month, you are really prioritizing your spending to make sure you are spending on what matters most to you. That doesn’t mean you can’t adjust as the month goes along. You will always have things come up that cause you to make adjustments, but by having that written plan you are able to make those adjustments based on your priorities and not by how much money you have left.
4. Try to create the perfect budget
Another mistake I made was trying to create a perfect budget for the entire year. There is no such thing as a perfect budget.
You have to do a new budget each month because each month is different. Sure somethings are constant like your mortgage or your phone bill perhaps, but every month has it’s quirks. School fees, birthdays, magazine subscriptions, that new pair of shoes, you name it. Each month will be a little different. There is no one size fits all budget.
5. No emergency fund
You are doing good budgeting. You’ve made it through a couple months. Then one week the water heater fails, the alternator goes out in the car, and the dog needs some medicine from the vet. Suddenly your budget is shot and you give up.
Without an emergency fund, you will never have a successful budget. Life happens. Unexpected things occur (and usually at the worst possible time). An emergency fund allows you to smooth out those bumps in the road. Without it you will fail.
6. Don’t plan for irregular expenses
Irregular expenses can sink your budget. Items like real estate taxes, insurance, some utilities, Christmas, vacations, and the like can wreck your budget. This is another mistake that used to trip me up. I’d think I was doing well until I hit that month where the taxes or the home owner’s insurance were due and suddenly my budget was wrecked.
Irregular expenses shouldn’t come as a surprise. You know Christmas will be December 25th each year. You know when the real estate taxes or other bills come due. The key is to plan for it. If you plan to spend $1,200 on Christmas gifts, then set aside $100 each month and when December rolls around you’ll have the money you need. Same is true for all those other irregular pills.
7. Set unrealistic expectations
If you budgeted $100 to feed your family of 6 for the month, unless you have a really big garden, you are probably going to fail.
Budgets have to be about more than just making the numbers work. It has to be realistic. Sure you can save on coupons and shop sales, but you will spend a certain amount to put food on the table each month. If you don’t budget a realistic amount, your budget will always fail. This is true for many categories. Your budget needs to reflect what you will really spend. If your spending exceeds your income, you may need to make some adjustments, but the bottom line is what is written on the page needs to be realistic.
8. You and your spouse aren’t in agreement
If your spouse says “Sure dear, the budget looks great, now I’m just going to head over to Home Depot and spend all this week’s grocery money on that new tool I want”, your budget will never succeed.
If you are married, you and your spouse need to be in agreement about what you will spend. If you are pulling in opposite directions you will never succeed.
9. Don’t ever say no
Last, but perhaps most important, if you are unwilling to tell yourself “no” occasionally, you will always get to the end of the month and wonder where the money went.
Don’t misunderstand. I don’t mean to imply you can never have what you want if you live on a budget. In truth it is the opposite. A budget allows you to prioritize your spending so you can have what is most important to you. But unless you are Bill Gates or Donald Trump, you probably don’t have enough money to always get whatever you want. You have to learn to say no to the things that are less important, so that you can have the things that matter most to you.