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Tuesday, February 21, 2017

Why You're Not Saving Money Even With A Budget

I tried finding the latest figures on the percentage of households that prepare a detailed budget and could only find Gallup's 2013 Poll.  Gallup reported back then that 1 in 3 families actually take the time to write or type up (on computer) a detailed budget.  There are also a large percentage of people that report to keeping their budget in their head (yeah...like this works), and some who scribble some things down on paper, but never get around to finishing.  Let's focus on the households that take budgeting seriously.  How, I ask you, is it possible that even with a detailed budget, most people aren't saving money at the end of each month?
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Today's post is all about the common mistakes people make budgeting.  Sometimes the problem is in the plan:

1.  Unrealistic budget.  Your budget should reflect your lifestyle.  Too many people set crazy parameters that they have no way of maintaining.  Say you've spent about $500 on groceries the past three months. Is it reasonable to budget $300 for groceries all of a sudden?  Not unless you're willing to starve yourself.  $450-$475 is a better goal.  Be mindful of changes to your situation as well.  A budget needs to be pliable.

2.  Complex budget.  Last month I wrote a post on why you should only use three categories for your expenses.  It simplifies budgeting and makes where you can save completely obvious.  This post was so popular it was published at Beatingbroke.com  and apparently brought Shane (the blog's owner) "more traffic in one day that I usually see in an entire month!"  The post was also picked up by RockstarFinance.com and Lifehacker.com.  So should you read it?  Of course!
Image result for budgeting pitfalls

Sometimes the problem is not in the plan, but the execution.

1.  Not reviewing the budget weekly.  Yes, you should review your budget every week.  That's four times a month where you are plugging into your head as a result of seeing things more than once, numbers you should not be surpassing.  If you set it, you'll forget it.  If you return to the budget to finalize your expenses at the end of the month, you'll see that you may have gone over multiple limits in various categories.  All because you didn't have a working memory of your limitations on each category.  So review, review, review!

2.  Not updating the budget weekly.  You must set time each Saturday or Sunday to update what you've encumbered already.  This means logging onto your bank account and going through each expense.  Obviously you need to note on your budget how much you got left to spend on things after each week.  If you have a grocery budget of $600 for the month, e.g., this means $150 per week to not go over.  How do you respond if you're at $175 at the start of week 2?  You're $25 over!  So cut back $25 on week 2 to stay on target.

3.  Not adjusting the budget when things happen.  Okay, so you have a set budget but you get a flat tire that cannot be repaired; now you need a new $85 tire.  If you didn't plan for incidentals in your budget, you'll need to adjust your budget to absorb this unexpected expense.  Most people spend the $85, say, "oh well," and go over their budget for the month. What should you do?  Eliminate $85 worth of expenses starting with the easiest place you can trim, like eating out.  Sorry, eat at home twice more (two less night outs), and this should cover the cost of the tire.

There you have it.  There is absolutely no point to doing a thorough budget if the plan is faulty or if your execution is poor.  Budgeting gets abandoned because most people don't have the discipline, conviction, or patience to adhere to parameters in their lives.  It's a whole lot easier to be in debt, then to get out of debt.  Lifestyle habits are hard to change so I suggest you budget wisely and above all keep it simple.  Thanks for reading!  If you liked this post and want to get more like them in your inbox, please subscribe to this blog by entering your email below.
    
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