Budgeting 101: Troubleshoot your Budget (2 of 3)
I’m pretty confident that almost everyone at some point in their lives, no matter how dire their current financial situation has made an effort in the direction of creating a budget (even if only to think about it!).
For that matter, there are almost as many theories out there about how best to budget as there are opinions on the current federal budget! (By the way, shameless plug – you can read my posts on how to create a budget that actually works here)
As the saying goes though, ‘best laid plans’. If you think you budget like a wild thing, but still consider it a victory when you managed to scrape through with a few bucks in your wallet on payday and spend a lot of time hoping like heck that they don’t cash that cheque ‘til next week, then this post is for you.
Here, I’ll outline some common budgeting problems/issues and what you can do to resolve them.
I’ve budgeted for what I aim to spend in each category, but at the end of the month I’ve spent more than I earned.
The inherent problem here is in tracking. It took me a while to actually get it into my brain that tracking against how you’re doing is as important as setting your goals / budget in the first place! It’s management 101 – say what you’re going to do, do it, track how your going, say when you’ve done it. If you know how you’re going during the month, you’ll be able to tweak things accordingly to ensure you meet your targets too.
I don’t have time to budget.
This is one of my very favourites. You don’t have time to tell you money where to go, but you have time to spend it? Setting up a budget is the part that takes the time. After that, maintaining it is quite easy. There are also lots of software programs available that will help you with the process. Some even automate the maintenance component for you, once you’ve set it up ? (more on these in my next post – stay tuned).
I get halfway through the month and happens which totally blows my budget.
This is where an emergency fund is handy. Your emergency fund is designed to be a sort of safety net between you and the real world. Ideally, this emergency fund has about 3 – 6 months worth of expenses in it. That is, if you had no income you could manage for 3 – 6 months on this fund without having to dip into savings or worry too much. Your emergency fund covers things that are impossible to foresee (or things you can foresee, but are highly unlikely). Stuff like needing to cover emergency accommodation costs that your insurance company will later reimburse you for. Or losing your job. Or your car being stolen the day after your insurance expired because you forgot to renew. If you’re just starting out on your journey to being fiscally savvy, aim to have an emergency fund of $1,000 until you’ve paid off all your consumer debt. This will cover a lot of things and help get you out of the mindset of relying on a credit card or other loan source. It’ll also help to prevent unforseen things messing up your budgetary plans!
I had a bit too good a time on Saturday night and spent more than I budgeted for entertainment. My budget is already messed up this month now, so I’ll just spend whatever and start again next month.
This sort of mentality can be really dangerous. Making yourself little deals about when you’re going to stop depriving yourself of achieving your financial goals can often mean that day never comes. A lot of people can understand this when it’s likened to dieting – how many times have you heard (or told yourself) – ‘I can eat this tonight, but this is the last time. I’m going to start my diet on Monday!’? The best day to start a diet and start a budget (or start any new habit) is today. It’s that simple. Be gentle with yourself though… changing a lifetime of habits can be hard. It’s okay to fall off the horse – just get straight back on!
My dog ate my budget.
Uh-huh. Well, there are a lot of electronic tools out there that can help you with budgeting. There are apps for iPhones, automated tools like Wesabe (www.wesabe.com), Mint (www.mint.com) and ANZ’s MoneyManager (www.anzmoneymanager.com). I currently use and recommend YNAB Pro (www.youneedabudget.com) – although this one does come at a cost (albeit small). If all else fails, there’s always Excel! Probably distinctly more difficult for your dog to eat your computer, but just to be sure… don’t forget to back up ?
I don’t need to worry too much about my budget for the moment… I’ll earn more in the future / marry rich / etc. so I can pay off all my debts then.
Repeat after me: the grass is not greener. I used to share an office with a girl who adamantly refused to write a budget because she planned to marry a rich man who would pay it all off. She felt that if she *didn’t* have any debt for him to pay off, then she and her parents wouldn’t really be able to tell if he loved her or what he was willing to do for her. Ironically, of course, she fell in love with a man that is not as wealthy as she planned. Whilst this example might be a bit extreme, I see versions of it every day. People who aren’t particularly willing or motivated to do anything about their financial situation today, because they’re confident that in the not-too-distant future, something will change and it won’t be so difficult. Personally, I did this for several years. I was confident that my salary would increase to the point that I’d easily be able to repay my debts. Unfortunately, as my salary increased, so did my debt and my lifestyle to match. Funny that.
It’s impossible for me to cut back anywhere so a budget doesn’t really do anything for me.
For most people, this boils down to need Vs want. A lot of us get caught up in the mindset that we need a lot of things because we see others with them every day. Spend a day in a third world country though, and you’ll quickly get brought back to earth. Seldom is it true that you’re unable to cut back anywhere. This leads us to the next issue though…
I hate feeling like I’m depriving myself so I find it really hard to motivate myself to budget.
The solution here is all in the mindset. Spending with no regard to your available income or what you want out of life is just depriving you of achieving your goals. Do you really want a latte every day more than you want to travel to South America / Learn French / retire early / whatever your dream? Mmm. That’s what I thought.
It’s too late for me to start budgeting!
Pffft. That’s about the same as saying I’m too old to quit smoking. It’s *never* too late to start budgeting! The sooner you start, the sooner you can take advantage of one of the great wonders of the world – compound interest. Moreover, with a budget you’ll know exactly where all your money is going – so you’ll know where you can tweak things a bit to supercharge your efforts. If you want to know how little things can make a big difference over time, try playing around with Dave Ramsey’s investment calculator: http://www.daveramsey.com/etc/investmentcenter/?Fuseaction=dspInvestmentCalculator – the advanced version is the most fun!
I’ve tried budgeting many times before and it never worked for me. I’m still in debt / living payday to payday / have no retirement savings / etc.
I’m sure you’ve heard the expression that doing the same thing time and time again but expecting a different result is a sign of insanity… So the simple solution is to keep reading and keep looking for different systems and ideas until you find one that works for you. Don’t try and fit yourself into a mould you know doesn’t work. Even little kids learn this rule early on – the square plug doesn’t fit into the round hole – so keep looking ‘til you find the round hole!
Payroll messed up / a customer didn’t pay on time so I need to put everything on my credit card until I get paid and my budget is totally ruined.
I admit it. I used to have this problem all the time. I’d be devastated when my favourite store had a two-day only sale right before payday so I couldn’t go! Now, I actually find myself marvelling over the fact that I forget it’s payday and generally don’t notice ‘til I hear a colleague saying something like ‘thank god we get paid today!’. My secret? I saved up a ‘buffer’ equal to one month’s pay. This means that I’m effectively living one month behind myself in terms of pay periods. So, what I get paid this month, I actually won’t start using until a full month after it lands in my account. This means that when payroll does mess up or I’m changing banks and something doesn’t go to plan and my salary doesn’t go through properly, it’s no big deal. Doesn’t that sound nice?
These seem to be the most common issues I’ve come across. If you’ve got a budget problem that needs solving, I’d be happy to hear from you!
In my next post for Savings Guide, I’ll be looking at Resources, Tools & Tips To Get You On Track & Keep You There. ‘Til then – happy saving!
About the Author
This post is part 2 of a 3 part series written by Sam Robinson.
Part 1 – Finding your Money Mojo
Part 2 – Trouble Shoot your Budget
Part 3 – Coming soon
Sam Robinson is a reformed spendthrift and a rockstar budgeter, having learnt the hard way how important it is to develop fiscally sound habits early on. In two years, she did a complete about-face to pay off almost $40,000 worth of consumer debt and save enough for a deposit on a house. Now, she’s committed to helping others learn and understand how to budget successfully, invest and save without feeling like you’re on a crash-course diet.
You can read more of her work at:
Moneypenny
http://www.moneypenny.me
Twitter
@moneypennyme
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