Setting up a budget is a step towards proper financial management, but how do you know if you are doing it right? It may seem like a simple task, but when not done properly, you’ll end up back where you started. There are a number of factors to think about when assessing your finances. So to help you manage your money like a pro, here are the common reasons why some budgeting techniques don't seem to work and what to do to get your budget back on track.
1. Don't leave no allowance for unexpected expenses.
When setting up a budget, make sure you have enough funds to cover emergency situations. If you or a family member suddenly gets sick and you don’t have the money to pay for excess hospital bills, then you’re back to zero. Worse, the money you’ve set aside for your household expenses will be spent on medical bills, forcing you to use a credit card or take out a loan just to get by. So if you want to make sure your budgeting scheme works, set aside a percentage for emergency expenses.
2. Don't overstate your financial goals.
Just like a budget that’s too small or has no room for emergencies, a budget goal that’s too high is also a no-no. Remember, your budget should be based on your actual source of income and expenses. An unrealistic budget will only make you feel frustrated because it’ll seem like you’re always way behind your financial target. Set goals that you can actually achieve so budgeting won’t seem like a burden.
3. Don't ignore the “small” expenses.
When tracking down your expenses, include everything you’ve paid for. That cup of overpriced coffee you’ve had for yesterday’s breakfast or your monthly pedicures should be included in the list. These may seem like small stuff, but if you actually add up the money you’ve spent on those daily cups of coffee and monthly salon visits, you’d be surprised with how much money is unaccounted for. And when money goes unaccounted for, you’re not really sticking to your budget.
4. Don't compare your finances with other people’s finances.
It’s easier said than done, but don’t compare your financial goals with other people. It’s good to find some sort of motivation to stick to your budget, but it shouldn’t be because you want to keep up with a friend who just bought a new car or flat-screen TV. Keep in mind that you and your friends have different financial situations; it’s possible that he or she has a better-paying job or you have a huge debt to pay off. You may end up spending more or burying yourself into more debt because you also want a new TV or car just like your friend.
5. Don’t confuse luxuries and necessities.
If you think you can’t live without cable TV, then think again. One of the many pitfalls that are causing you to not meet your financial goals is not being able to distinguish a luxury from a necessity. To help you figure things out, list down all your necessities. If some of them have cheaper alternatives (ex: cable TV versus Internet TV), then they’re most likely luxuries. Once you’ve identified things you can live without, it’ll be easier for you to come up with more affordable alternatives so you can stick to your budget and reach your financial goals.
To make money management a fairly easy task, come up with a realistic budget, list down all your expenses (even the small ones), don’t compare yourself with others, and learn to identify the things you really need. Sticking to a budget can be tricky, but once you’ve figured out what you’re doing wrong, reaching your financial goals will seem less of a burden.