Six Steps to a Busted Budget

The task of budgeting is a nightmare for most - and that's if the related stress even lets you get a wink of sleep. People hate the notion of changing habits and disciplining their spending. However, a healthy budget can prevent many headaches down the road and is well worth your time!

There are many reasons for failed budgets - here are a few you can hopefully avoid in setting up your personal plan.

1. Inability to keep up with tracking. If you make so many purchases each day that you lose track of the receipts and have no idea what the charges on your credit card are, you may need to re-think your strategy. Waiting to track your budget until transactions clear the bank may spell disaster (for example, transactions from Friday may not even appear until the middle of the following week!). Keep on top of your spending to see an accurate picture at all times.
2. Not accounting for irregular expenses. Not all expenses are accounted for monthly. Many, like certain types of insurance, car registration, veterinary fees, medical expenses, and others occur at random throughout the year. It’s important to average out and account for these when creating a budget that won’t crack.
3. Getting ahead of yourself. If you have a budget surplus mid-month, that’s great! But don’t get ahead of yourself and commit your income through the end of the month without knowing what the rest of that time frame will bring. Use a surplus as an extra cushion in case of unexpected expenses, and save it if things go well.
4. Unplanned expenses. Like irregular expenses, unplanned expenses occur throughout the year, but with even more unpredictability. They can sneak up when least expected, and can also attack in groups. Careful planning by averaging out yearly expenses and a good emergency fund can adequately protect you from these.
5. Not leaving any wiggle room. Wiggle room is important, not only on a crowded bus, but also in your budget. Even with planning for irregular and unplanned expenses, setting up a budget that balances out is almost asking for failure. The smallest expense over and above the budget will immediately put it in the red, and this will be a big blow to your self-confidence. Leave a percentage of your income un-allocated until the end of the month. Chances are, one of your categories will appreciate the extra help.
6. Using the wrong tools. When your needs or in-grown habits don’t correlate well with your budgeting software, no amount of effort will yield the results you want. The best way to discover what works for you is to try many different services and analyze what features are most important.