You swore on a stack of Bibles that you were going to do budgeting and stick to it. This would solve all of your money problems and you’d be able to ride off into the sunset in a state of financial bliss.
So, you create a budget, get barely 2 weeks out when you realize you’ve already blown it. But you, being the resolute person you are, keep pushing and you make it through your first month.
The problem is that when you review your spending you find it was nowhere close to the budget you had created. I mean, how could you have predicted your dog would need an emergency trip to the vet at a cost of $80?
Month two comes and goes and you find your spending still isn’t within your budget. This time it wasn’t the dog. It was because you dropped your smart phone engendering a cost of $75 to replace its broken face.
After a third month, you’re still trying your best to stick to your budget but it’s just not working. You feel yourself getting more and more frustrated because budgeting just isn’t doing what it was supposed to do for you. You go on for several more months and then give up.
You’re thinking about budgeting all wrong
If this sounds familiar, don’t despair. The problem isn’t that you’re a bad money manager. It’s that you’re thinking about things all wrong. Just like the rest of us, you are taught to think in terms of months. And that just makes sense. After all, your utility bill is due every month as is your cell phone bill, your insurance premium and maybe payments on your student loans or maybe you need to make payments on a low-interest debt consolidation loan you used to get your debt under control.But when you think about things only in terms of months, it’s practically guaranteed that you will fail at budgeting.
You’ll have uncommonly large expenses
If you think only in terms of a single month your budget will become rigid and there’ll be little room for flexibility. If one thing goes wrong – like that trip to the vet – it can blow your budget for the entire month. These types of expenses are unanticipated but you must expect them. When you’re budgeting from one month to the next, you can’t anticipate the unexpected. There’s just no way that you can react when circumstances change and your budget gets totally blown.
Holiday months are special
When Christmas rolls around you’ll be required to buy gifts for everyone in your family and maybe your spouse’s family. Then there is all that food, lights, pictures, decorations, drinks and entertainment. There are also holidays such as Halloween that require costumes and parties. Plus, there are holidays such as New Year’s Eve and the Fourth of July where you’ll be spending extra money. There are basically five months out of the year where there is some sort of a major holiday that will cost you something.
Then there’s what you want to do
We haven’t yet included your wants. Some months you’ll want to take a weekend vacation. On others, you may want to eat out a lot or use up a lot of gas visiting friends. Then there’ll be months when you just stay home. The fact is that no two months look alike. They’re all different. And if you budget as if they were all the same, you’re doomed to fail.
A better answer
A better way to budget is to stop focusing narrowly on month-to-month but look instead for overall trends. If you’re still in your first few months of budgeting, don’t despair if you’re not constantly on target. This is actually part of the process. The important thing is to not stop trying to reach your goals. After maybe six months you should be able to see your spending trends. After a year, you’ll have a very good idea what your typical month looks like. This is when you can begin budgeting more accurately.
Take, for example, Christmas you might find you spent roughly $600 on Christmas last year. That was everything – Christmas cards, decorations, presents and other miscellaneous expenses. So, beginning in January you need to set aside about $60 per month just to cover those Christmas expenses that you’ll eventually run into.
Covering all unexpected expenses
You can do the same thing to cover all of your unexpected expenses. After a year, you’ll have seen what they are and whether it’s birthdays, holidays, car repairs or even medical bills you can budget for them by setting aside a certain amount each month. For example, you might set aside $250 per month to cover your unexpected expenses. Any of this you don’t spend you can just put into your savings for use later.
Get some helpful software
Spotting overall trends in your spending is a lot easier if you get some helpful software. This is the easiest way to develop a solid picture of what’s happening to you financially and to spot trends over the long run. One of the most popular of these is You Need a Budget (YNAB). It’s great for tracking all your expenses. If for some reason you’d rather not use YNAB three other good ones are Personal Capital, Mint and Quicken. While Personal Capital is great for tracking investments and seeing all of your accounts together, it’s a bit lacking on the budgeting side. Quicken is much better on budgeting compared to Personal Capital but doesn’t offer quite as much flexibility as YNAB. And of course, there’s something to be said for creating your own spreadsheets. This obviously requires more effort and time but there’s a lot of personal reward to be gained when you create something yourself.
Make no mistake about it. It’s hard to budget. It’s hard to stay on a budget. But it can be done. Get a budgeting app, make a budget and get started. You’ll undoubtedly start by screwing it up. But that’s the only way for you to learn how things work for you. Don’t get discouraged. We all miss our goals initially. But if you keep on keepin’ on you will win in the long run. You’ll have your finances under control and you’ll be able to ride off into the sunset in that state of financial bliss we mentioned in the first paragraph.