Time to Revisit the Budget? Reasons why Budgets Fail

budgetingHaving a household budget and sticking to it is a crucial step on the road to financial health. However, having a budget in place that seems to be failing is a sure fire way to take a large step back from your goal. Here are some reasons why budgets fail, and why it may be time to tweak.

Understand the Psychology at Play

There is nothing like the perception of failure in the short term to derail a long term plan. Chances are though, it is not you that is failing, but the budget itself is not suited to your needs.  If you are continually falling short, month after month, it is time to take a step back and clearly identify why this is happening, and place blame in the appropriate spot before giving up altogether.

Paint a Full Picture

Perhaps you jumped out of the gates, pulled by the great idea of having a household budget before really taking a snapshot of your habits and coming up with realistic strategies on how to manage your finances.  Before embarking on a budget, track all your expenses in an easy to read, easy to follow format against what you generate in income for a few weeks to get a full understanding. Be specific in how you are going to cut costs and what items are associated with that (not just “I’m cutting out $200 a month”).

Stress Test

How much is your budget dependant on variables? Are you subject to high interest rates, or is your mortgage attached to a variable rate, or have you recently renewed your mortgage for a higher rate? Interest rates can factor heavily into the ability to pay debt, so investigate how vulnerable you are to fluctuations. This could be eating away at your bottom line without you even realizing it.

Your Budget is Too Restrictive

Keep in mind that sticking to a budget is a long-term activity. While you are holding your budget as a guideline, you still have to live your life in the meanwhile. A little reward now and then is not only perfectly acceptable, it is necessary to see you through. Cut out all rewards, and not only will your budget fail, you will resent it. Plan for rewards along the way that are cost-friendly, and include them with your budget.

No Goal

What is more exhausting and frustrating- walking a straight line, or spinning in circles? Spinning in circles not only gives you a headache, it doesn’t bring you any further ahead. The same can be said when it comes to budgets.  Clearly articulate your goal to most expeditiously get there, and to accurately measure your success.

Giving up Too Soon

Budget success is on a time-release program. That is to say that, the incremental steps you take every day are what carry you towards your financial success. However, because the movement is small in the short term, it might be tempting to throw in the towel. Make sure you give your budget enough time to really reap the rewards.

No Wiggle Room for Emergencies

The thing with emergencies is that you can’t really predict their patterns or their presence. By the same token, nothing can punch a hole in your balance sheet like an unexpected major expense. The good news is that by actively including emergencies on your balance sheet, and by allocating some money to unexpected expenses every month, you can mitigate their financial impact when they arrive on scene.