Here’s why your budget isn’t working
ONE of the first steps financial advisors generally recommend to get your financial affairs in order is to create a budget. For most people, it helps them to clear their debt and sets them on a path to financial independence, but sometimes, unfortunately, budgets don’t work. And when this happens, banker Vaughn Levy says that there could be several reasons for this, some of which he has shared below.Your budget is unrealistic You aren’t practising self-disciplineYou are a giver Your expenses are higher than your income You aren’t organisedYour budget sucks the life out of youYou’re not tracking your spending It’s not emergency-proof You aren’t patient
If you want your budget to work, then it has to reflect the truth even if it scares you a little. Lying on your budget about income and expenses will only lead you back to the road that you are trying to get off.
If you are not committed to sticking to your budget, then it is just another document. For it to work it means that you must play your part which is keeping your end of the bargain. This means that you will have to be accountable and as best as possible respect the contents of your budget.
You love to give and that is fine; but you don’t have to feel obligated to grant every request that people make. Anything that you are giving should be covered in your budget. Therefore, if you insist on getting everyone gifts or if you are going to grant their every request, you should sacrifice something in your budget to make this happen.
Giving freely also takes into account your inability to tell yourself “no”. But if you want your budget to work you sometimes have to deny even your own requests.
Check your monthly expenses. If they are more than your income this means that you are creating debt. As such, you will need to revise your expenses, look at your budget and see what you can cut. If possible you could explore ways that you could make some more money so that you can cover your debt and save some more.
If you keep leaving out categories of expenses, understating expenses, or fail to adjust your budget as you learn more about your monthly financial obligations, then chances are you will definitely will fail at your budget.
Budgets are supposed to help you to be more disciplined with the way you use your money. However, having a budget does not mean that you don’t get to live. So plan. There is room in the budget for leisure – all that is asked of you is that you are reasonable.
We use cash less frequently than we used to – now, with credit and debit cards at our fingertips, we swipe at our convenience. What we often forget to do though is to check just how much we have spent. One recommendation to reduce your chances of losing track of your money, especially when receipts elude you, is to sign up online, and that way you can see all transactions in real time. This way you not only see how much you have spent, but also how much you have remaining.
Naturally, when drafting regular day-to-day budgets, even if you set something aside for miscellaneous it’s usually very small. It’s there to cover something that you might need that doesn’t cost a lot. What budgets are not designed to do is to absorb emergencies and it will get blown, maybe for several months, if it gets derailed.
This is why your financial advisor usually recommends that you set up an emergency fund, separate from your savings, to deal with surprises.
A working budget takes time to achieve. Most times they are a work in progress and it can be hard living within limits. But sacrificing now may not only mean your financial freedom, but it is setting you up to live a much better quality of life.
