When you can’t control your money, making more won’t help. Due to poor money management skills, many of us don’t seem to survive either rich or poor. Managing your earnings can be challenging enough. Earning more money can’t fix bad spending habits, you will just end up making bigger payments. A budget tells us what we cannot afford, but doesn’t keep us from buying it.
What is Budget?
Budgeting is the first step towards financial freedom. It’s not about how much you earn, it’s how you spend & save! A budget helps you to know where your money goes, instead of wondering where it went.
Reasons why your Budget Fails:
When people can’t manage their money within the budget as planned, it is called Budget Failure. There may be many reasons for the budget breakdown. The numbers may not fit or you may just spend more than you’ve budgeted for. Sometimes, your expenses may be higher than your income. And here the problem is not your budget, it’s your spending habits. Unless you reduce your unnecessary spending habits, there is no use of even increasing your income.
Your expenses are higher than your income: For many people, budget is a financial goal. If your net income (income – spendings) is a negative number, it means you are spending more than your income & it will result in a budget loss. Here, the problem is not your Budget, it’s your spending habits. Track / review your spending categories and figure out where you can cut back on.
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Budget fails when you ignore Miscellaneous Non-Fixed Costs: People plan almost everything while preparing the budget, which includes daily lifestyle costs like groceries, utilities, and debts(if any). But they ignore unexpected costs that can be largely unpredictable. For example home repairs, car repairs, emergency medical expenses, etc. Don’t ignore these miscellaneous non-fixed costs. If you don’t have the emergency fund to tackle it, you’ll end up busting the budget and taking money away from your goals.
You haven’t been adjusting it since Day One: Budgeting is all guess-work until you put it into practice. Plan your budget doesn’t mean that everything will run smoothly once you’ve put it into play. You have to revisit your budget on a monthly basis. Change your budget plan according to your monthly expenses including miscellaneous.
Some people spend 70% of their budget in the first 15 days and adjust the remaining 30% to the next 15 days. But this is not actual budgeting, you should adjust your expenses from day one. Give some time (at least for 10 – 15min) to analyze your previous month’s budget and make changes for next month.
Leaving out items: A very common mistake is to forget about putting things in the budget. You may leave out such things as donations, haircuts, and gifts, etc. Unless You have planned or budgeted for these expenses, it is hard to pay bills or to skip. The best way to budget your annual bills is by dividing the amount that you pay by twelve and setting aside that amount each month.
Not working as a team: If you are a married person, you should work as a team with your spouse to make your budget work. You both need to be engaged and discuss your finances. This will prevent both of you from spending too much money in one day.
There is always a reason behind every spending, but don’t start giving reasons for spending more than you planned. Once started means, it will continue … forever.
Tip: When your budget fails for a month, review all expenses (keep every small bill) by the end of the month. So you will get your answers for your budget failure.
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How to overcome “Budget Failure”?
A small hole can sink a great ship. Just like that, when you start giving reasons for your spendings more than you planned, it will sink your budget ship. Be stronger than your excuses. Doing a budget means learning an ancient & powerful word NO! Check twice or thrice before you set the budget whether it works for you or not.
Give 5 minutes to track your daily expenses: Sometimes, a small habit can change our complete lifestyle. Yes, when you start tracking your budget daily for 5minutes before going to bed, you will get an idea about extra/unnecessary spendings. So you will cut that and plan your budget.
: Sometimes, a small habit can change our complete lifestyle. Yes, when you start tracking your budget daily for 5minutes before going to bed, you will get an idea about extra/unnecessary spendings. So you will cut that and plan your budget.
Focus on your needs, not wants: Sometimes, we are so focused on what we want, we miss the things we need. Ask yourself once before buying anything, whether it is a need or you want it? There is a BIG difference.
Start saving small amounts – don’t force yourself to save more: Place yourself in other mini-goals to keep you focused. If you can save regularly, even small amounts add up.
Always plan for emergencies: There can be emergency situations like medical emergencies, major home damage or job loss, etc. Emergencies are not your fault but not having an emergency fund is your fault. Always keep some amount as an emergency fund before planning your budget. So, situations don’t force you to break your budget plan.
More tips for your budget plan:
- Plan a budget with your family – when you live with your family, discuss your financial goals and budget plan with them. It will help you a lot.
- Spend wisely to save in the future – for example, One coffee is AED 10 and for 1 complete year, you will spend AED 3650. When you buy a coffee machine and other ingredients for only AED 3000, you can save AED 650 on just a coffee.
- Save for long term goals – Retirement, children marriage, higher education, etc.
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Don’t be too restrictive on your budget. Budgeting doesn’t mean you can’t enjoy your daily hobbies and entertainment while working on a budget. Cutting off all the fun will make your budget resentful. But it is not your goal. So, have fun and keep it reasonable & budget-friendly.
The budget is going to work only when you stick to your plan. It helps you to make smarter financial choices and control over your money. Give enough time to yourself to make your financial management take effect. Give yourself and your budget the time to succeed. It’s not just a one-day plan. Make it a habit to live on a budget even if you spend more, it makes a big difference.