Budget: a two syllable word which makes many of us groan. For some reason people tend to dislike the word “budget” it has a negative connotation and often brings to mind the thought of stress over money and lifestyle deprivation. In reality, budget is a great word, and budgeting is a great concept. While the idea of budgeting may not bring you excitement, it is crucial to your financial health. Throughout my experience as a debt resolution attorney for over 20 years, I have become very familiar with typical budgeting mistakes and how to fix them. Nearly everything worthwhile comes with a learning curve and budgeting is no exception. There may be various reasons why your budget isn’t working, and most have simple fixes!
Here are five reasons why your budget may not be working in your favor and how you can fix it.
"It’s so important to have a 'what if' fund to avoid relying on credit cards, personal loans, and other forms of self-imposed debt."
1. Not making friends with your budget
Don’t laugh but I have known people who would rather have dental work done than work on a budget. For them, a budget is an enemy. If budgeting makes you cringe as well, my first step would be to tell you to wave the white flag!
The Fix: A budget is your ticket to getting out of debt, saving money, and achieving your financial dreams. In short, your budget is the best financial friend you can have. For those who are resistant to make the leap from foe to friend, I suggest naming your new budget. Name it Desire for something you’d like to be able to afford eventually, or Bill because you want to emulate Bill Gates. Whichever name you choose, the second you give your new budget a name it ceases being an enemy and starts being your friend.
2. It’s Not SMART
“Smart” budgets are specific, measurable, attainable, realistic, and trackable. Have you ever thought to yourself “I’ve been good about my spending lately” only to take a look at your account balance and wonder where all your money has disappeared to? If your budget does not accurately reflect your expenses every month or sets unrealistic spending limits, there is no way it can work.
The Fix: Making a SMART budget can be scary because it requires you to get down in the nitty-gritty of your bank statements each month. It can also be time-consuming to make a SMART budget. Do it in a place where you have minimal distractions and where you feel relaxed. Whether it is in a bubble bath or in bed, being in a stress-free environment will make creating your budget that much easier.
3. Omitting One-Time Annual Expenses
If you’re not tracking your expenses accurately, this may lead you to go over budget. Keeping track of consistent monthly expenses like mortgage and utilities is easy because you pay these monthly. However, your once-a-year or semi-annual expenses like taxes and insurance premiums have to be a component of your budget as well.
The Fix: The more details, the better! When you first begin budgeting, make a new budget for each month and mark on your calendar which months you pay your annual or semi-annual expenses. This also includes subscriptions, dues, membership fees, annual credit cards fees, etc. After you get the hand of it create a new budget every six months, or when something significant changes in your financial situation.
"Have you ever thought to yourself 'I’ve been good about my spending lately' only to take a look at your account balance and wonder where all your money has disappeared to?"
Photo Courtesy of longliveyourmoney
4. Not Preparing for the Unexpected
Just when we may think we have a handle on our lives, unexpected turn of events can happen, whether you are faced with a busted air conditioner or an impromptu trip to the ER. If you do not have the funds to cover these unexpected expenses you can dig yourself into a hole called debt. It’s so important to have a “what if” fund to avoid relying on credit cards, personal loans, and other forms of self-imposed debt.
The Fix: Incorporate into the expenses portion of your budget called the “what if” fund. Make regular contributions and if you take money from it be sure to replenish what you took out. This fund can rescue you when trouble occurs, or act as a welcome source of cash when you need it most. Having the fund available will give you an extra layer of security and serve as an incentive to continue budgeting.
5. You’re Not Sticking to it
By far the most common reason your budget isn’t working is because you simply are not abiding by it. Whether it is an inability to say “no” or because you aren’t paying attention, the bottom line is it can’t work if you do not stick to it.
The Fix: Budgeting can be like working out; you are really motivated and excited at first, but slowly you get tired and lose interest. It is essential you push through this boredom. If you are struggling, consider budgeting with a friend! Just like you may exercise with friends, budgeting with friends can have the same effect. You can motivate and push each other to get the most out of your budget.
Once you begin budgeting and see how easy it is to turn your bad debt into good debt (and reap the financial awards that come with it), you will wonder why you ever thought it was an impossible task. Your budget shouldn’t be an added stressor but a source of stress relief. Remember your budget is your friend and just like any other relationship you need to give it proper tender loving care, set a date for it regularly.
It isn't always easy to stay on top of your finances, especially when you have developed unhealthy spending habits over the years. However, as you begin to realize the many benefits of having healthy finances, it can become something you want to make a conscious effort to improve. When your finances are in a good place, you often have access to better opportunities whether it be a mortgage loan, greater credit line or business loan. On that note, here is how you can become an expert at managing your finances in case you need a few tips.
Learn to Use Technology
The good thing about managing finances in the technological age is that you don't have to do it alone. There are so many apps available that will help you pay bills on time and track your expenses. For instance, some apps force you to live within your actual income and tell you what to do when you need to balance your budget.
If you need an app that will help you get better at saving, then some will set aside your spare change for you. Also, don't be afraid to use more simple tools such as your smartphone calendar to set reminders about payments if you don't automate them.
Seek Legal Advice
Sometimes, being an expert at something means understanding that you can't possibly know it all. This is why you have professionals around you that can help fill in the gaps where you're lacking. Consider hiring a legal firm to help with any challenges that are beyond you. Lexington Law is a good firm as they could help remove negative items from your credit report. Read this Lexington Law Review (Our #1 Credit Repair Service of 2019) to find out more about how they could help improve your finances.
You can't do better than what you know when it comes to managing finances. You should, therefore, invest your time in learning more about finances and how to manage them. Think about what your goals for your finances are and what knowledge gaps you need to fill.
For example, if you want to invest in the stock market so that you can improve your net worth, then you may need to learn more about investing to do so successfully. To boost your knowledge, try reading articles on credible blogs that share finance information from professionals. Also, be weary of content from finance-driven companies as it could be biased.
Work on Growing Your Income
As a self-proclaimed finance guru, you know that the more sources of income that you have, the better. Work on increasing your streams of income so that you have more money to meet your targets whether it's to save for a property or put larger sums towards retirement. One way to do so would be by getting extra income by doing social media marketing for businesses or creating tutorials on YouTube. If you own a property, renting out rooms is a great way to make passive income.
Live Within Your Means
It can be difficult to live within your means when you live in a society that is always presenting you with things to buy. However, being more conscious about the things that you purchase could help you realize that most are wants rather than needs. To live within your means, always take time to think about a purchase as opposed to impulse spending. You should always get good at bargain hunting as many times you can find items of similar quality at a cheaper price.
Learn How to Manage Debt
Debt doesn't have to be a bad thing if you understand how it works and how to manage it. It can be a tool for credit building when you understand the fundamentals. For instance, if you take out a loan or credit card, always be mindful of your interest rates.
By paying the amount of money you borrowed back in full before the due date, you won't have to pay interest on what you borrowed. If you can't pay back in full, paying more than the minimum payment will ensure you incur less interest. For the most part, the secret to good debt management is never spending more than you can afford to pay back.
Managing finances is a life skill that can help improve your quality of life. By following the mentioned tips and taking your finances more seriously, you're more likely to master the art of healthy finances.