TOP THREE CAUSES OF BUDGET FAILURE
Many people make an honest attempt to budget, but become discouraged and give up before they are able to accomplish any significant financial gain. The top three causes of budget failure come into play before you even begin to set up your budget. Awareness of these budget busters, is your first line of defense in the Battle of the Budget.
Budget Buster #1 - Negative Attitude
It cannot be emphasized enough--a positive attitude about budgeting is essential to your success. If you think of budgeting in negative terms (such as a financial diet, financial handcuffs, restrictive, penny-pinching, a sacrifice, etc.), you are sure to fail, unless you are a martyr or a masochist who finds some strange reward in a punishing experience. For purposes of this article, we will assume that you are neither.
A positive attitude means you think of a budget as a means to an end--a way to achieve your dreams and goals--and that postponing the instant gratification of spending all the money you earn is worth the rewards you will earn in the end.
Budget Buster #2 - Lack of Motivation
What is your motivation for budgeting? Are you trying to appease a nagging spouse? Following the terms of a debt repayment plan with a consumer credit counseling agency? Complying with an agreement made in bankruptcy court? These are not bad motivations, but they are external pressures and will probably not be easy to maintain over time. The best motivations are internally generated: do you honestly believe that budgeting can help you meet your goals?
If you need a little help in the motivation department, see "Twelve Reasons Budgeting Can Improve Your Life". A quick re-read of these will surely inspire and ignite a motivational spark or two!
Budget Buster # 3 - Unrealistic Expectations
What do you expect to gain from instituting and following a budget? Do you think that setting up a budget will reveal large caches of hidden cash or that the budget fairy will sprinkle fairy dust over your budget and magically transform your spending habits after a month or two of tracking expenses?
The reality is that budgeting is an endurance event--those who stick with it, through thick and thin, will come out ahead financially. Do not expect miracles. What you WILL see if you stick with it is steady, measurable progress towards the goals that really matter to you.
Starting a budget without having a positive attitude, internal motivation, and realistic expectations, will probably set you up for failure. You can greatly increase your chances of success by ruling out the three biggest budget busters before you even begin.
Family budgeting – just the thought of it makes most of us cringe. However, mostly, we do attempt to curb our spending and live within our means. Others fall into bad habits, habitual spending patterns or impulse shopping and over-extend themselves, landing knee-deep in debt!
Ironically, one of the first remedies for any debt consolidation or repair strategy, is to take a long hard look at the budget and financial patterns within the household! It is almost like running a diagnostic.
To take a closer look, you are in effect placing your family dollars under a magnifying glass and microscope. This can prove both challenging and painful for most people. We hope to alleviate some of that initial discomfort and apprehension with this handy step-by-step guide and tips.
Most financial advisors will tell you that you have to reward yourself for good fiscal responsibility, discipline and habits, to increase your motivation and success levels.
Budgeting is the first step, sticking with and to it, a close second and the sometimes overlooked but ever-important reward, has to keep the motivation going! To repeat and continue to experience the benefit of the budgeting cycle and discipline could be an uphill battle, but there are calmer seas ahead.
Cash management, savings, planning for retirement, setting financial goals etc. active and hands- on, is becoming increasingly important for the survival and well-being of our families everywhere.
Be your own best expert with coming up with new ideas on how to save money, budget better and spend less! Your unique strategies stem from a deep understanding of your own situation, demands, and needs. Discover which tips and ideas work best for you. After all, fiscal management and finances are definitely not a one-size-fits-all solution environment. It is personal, customized and unique.
In the following section, we will briefly refer back to the family budget defined and look at some of its elements and criteria, purpose and functions.
What is a family budget?
What constitutes a good family budget?
What should it contain and look like?
What is the family budget again? It is a pro-active, hands-on approach, focused, technical and disciplined strategy to getting a handle on the current financial situation in the home and family,
It concerns setting realistic, SMART financial goals for the household, sticking to it, celebrating successes, learning from failures and trying again if you do not succeed or get it right the first time round .It is about shifting focus completely from a mainly spending to a savings orientation. Cash and money-management 101 for everyone!
We have laid out what a family budget is, does and affects. A brief mention of what constitutes as good family budget and the elements that it contains as well as its appearance, format and functional role follows.
All of us have a wish list of new things that we want. There is always things we would find and places to spend our money. Take the time to make a list of these things. Let everyone who shares cost in your home to have input into making and finalizing this list. Write down what you want most. Beside the goal, write how much it will cost. Split it into goals with ongoing costs and the cost per month, and goals with a one-time cost and list the actual total cost (including all hidden fees, taxes, shipping and or other charges that might apply. Now, next to these columns, start to prioritize these goals.
Which goal comes first? You need to decide which goal on your list should come first. Talk this over with the other members of your family. If you live alone, think it over yourself. Try to list your top four goals and decide what you can fit into your budget.
A ‘good’ budget is in the eyes of the creator or beholder alike! Some suggested, but by no means comprehensive criteria follows:
Budget is both process and product
Collaborative, engaged, hands-on effort
Characterized by communication and mutual agreement
It advocates involvement and exchange
It is real-time and reality-based
Factual
Accurate
A financial check-up and check-in on the family finances, household dollars, situations, behaviors, and resources.
An action-plan, future-oriented
Offers a peak into the past, scrutinizes and enlightens the present, while planning and promising a future
Goal and results oriented
The Family Budget Process
This brings us to the family budget process. We might ask questions like:
How to set up a family budget?
How should a family budget be used?
Insights around the tools and techniques of family budgeting could also be useful:
Practical suggestions for setting up a budget?
A step-by-step summary of a family budget process
Hints, tips, tricks and tools for setting up a family budget
Stay tuned for more…
To get us started and in order to set up a monthly budget, follow these five easy steps:
Step one: find out your monthly take-home pay
Step two: find out what your expenses are
Step three: find out how much you spend on each expense
Step four: see if your monthly expenses match monthly take-home pay
Step five: Balance your budget. This means in your family budget you need to ensure that you are spending matches take-home pay. It might indicate that you have to cut back on spending to balance.
It sounds too good to be true and too simplistic. However, in the end, that is all there is to this family budgeting process! Initially at least. Let us look at these steps one at a time.
Your income is your pay, after some money is deducted. Think taxes, insurance and Social Security. Answer the following questions:
What is your monthly take-home pay? Do other people share expenses in your home?
As mentioned before, total all of the households’ monthly take-home pay. This will include all sources of income for all contributing members of the household.
This brings up other pressing questions:
What are your monthly expenses? Where does the money in fact go every month?
Most people are surprised to learn that it may go for things that we do not need at all. Writing your expenditures down provides us with the unique opportunity to visualize and find out if any money goes for things that we do not need or want.
Here is a short list of expenses that many people have. Put a check mark next to ones you have, then write down any expenses you have, that are not on the list.
This is the hard part, where some thought and effort will have to go into the process to ensure the most accurate information is recorded. This will give a realistic and real-time estimate that is reliable and accurate.
In this section, you need to ask yourself how much each item on your list actually costs how much each item costs you a month.
The following estimates and guidelines could prove helpful to you as you set up your family budget:
Compare your total expenses with your take-home pay. A couple of results and scenarios could be staring you in the face:
Positive result: Income more than expense – you can either spend or save!
Negative result: Expense more than income – spending more than you have, you might have to cut costs and try to save some money to cover the bases!
Whichever of these outcomes you are faced with, knowing is better than not knowing. For some this might bring little comfort and relief, but people in general, find this exercise useful to make an unknown more measurable. It makes us both accountable and wanting to act, faster and that sense of urgency and momentum is just what the family budget process needs!
Earlier it was stated that a good budget would mean income would be equal to expenses. Having a small surplus is no guarantee by any means. You might need this to cover and unexpected rise in oil and gas prices or a larger grocery bill due to a party you are hosting at home.
This almost brings the concept home of a sliding scale, flexibility and discretionary buffer categories in budgets to absorb this give-and-take roller-coaster ride that is family budgeting.
The good news is whether you are in the red so to speak or just scraping by, managing to save nothing or maybe a little, or even a lot, this process will highlight areas where your attention is needed right away. It gives direction and purpose and assists families to formulate their spending plans, goals, re-visit their needs, dreams and goals.
Balancing the budget is no easy task. Here are a few steps that we can suggest to make your life a little easier:
Find out how much you need to cut from your expenses
Decide you can make cuts in your expenses and be detailed
Re-balance your income and expenses after you've made these cuts
A word to the wise: Do not make cuts in your budget that you cannot live with in real life. It is extremely important to remain realistic and keep your real-time expenses and living realities in the forefront of your mind when you make these decisions.
If you’re getting out of a situation where you are in debt and short of cash, you have to try to curb spending any way you can. Cutting those expenses are crucial, not only because you are over budget.
We mean that there might be other reasons, like adding a budget-line to your overall planning for your family vacation. Realistically, we cannot add and address new needs and goals before we have fulfilled our duty and responsibilities.
Cutting a little here and there will mostly do the trick – cancel that newspaper subscription for the papers that just land in the recycle box or garbage anyway. Do you need all the specialty channels and packages on your Cable TV options? Can you live with giving some up?
There is always the specter of rising prices and interest rates, inflation and more to cope with as well, so building preparedness for that into your budget is also a priority. Whatever we can do to cut our costs and expenditure will benefit our pocketbooks and family budgets immensely!
Cutting back on things you need the least is a good starting point if you are at a total loss as to what and how to give something up, add a new line into your budget or plan for the future or inevitabilities. You are well on your way in the family budgeting process. You are doing it, every step of the way. Consolidate and re-visit your budget often – it is a dynamic process and ‘living’ document or tools so to speak to help you keep your fingers on the pulse of your financial situation.
Another useful strategy is to set up a bill-paying plan and process that will protect your interest. When, how and how much you get paid will all influence your course of action. Creative and innovative allocation of your paycheck is the key.
If you get paid once a month, the amounts in your budget will have to be paid monthly as is. If you get paid twice a month, divide each budget item by two.
If paid bi-weekly (as is mostly the practice these days), still divide the monthly amount by two – it will not be the exact amount to plan for, but a rough and close estimate. In the end better than nothing!
If you are paid weekly, divide each budget item into 4. Cash flow management will form a big part of your fiscal strategy, once you have put your budget pen to paper and mapped out the needs and requirements. Utilize your cash, checking and savings account (if applicable) to pay for expenses. Do not pay your bills with your credit card!
Keep track of all your discretionary spending. A financial diary for a week is always a good idea to scribble down in every time you withdraw money, pay for something or open your purse without thinking.
This will provide you with insights you did not have before on where the money actually goes. It will also carry within it, clues to adjust budget lines if actual cost is higher on certain items. Spending patterns and behaviors will emerge that might surprise or shock you!
Having some wriggle-room and discretionary spending is always motivation. The occasional treat and indulgence, special night out or other family activity is that more enjoyable, if you know you have worked hard to earn it and deserve a pat on the back for all your fiscal responsibility and discipline!
Always keep one eye on the future folks… budgets might need to change again and again for a variety of reasons. You can never feel you have “arrived” completely and that your budget is set in stone. Family and life often throws us a curve ball or two, banks, service providers, government and fate sometimes do too!
Changing budgets should not be a source of frustration for you; it actually shows you that your family budgeting process is actually working. It is a real-time pulse and mechanism to capture these changes, which will leave you prepared and informed, ready to act and respond appropriately. This impetus for change can come from different sources.
Here are some examples:
Change of income, goals, rising prices, goals reached, family growing, moving and or relocating to a new place, family getting smaller, new spending habits, change in lifestyle or unplanned expenses.
If you can stick with it and see it through a family budget can help you meet your goals, get and stay out of debt, pay your bills on time, every time, keep track of your spending, cut costs and stretch your dollar to the max!