Budgeting 101 – Why Budgets Fail

pigeon_lose_fingerSo far we have talked about tracking your spending, and setting up your budget. In this last installment of my Budgeting 101 series I want to touch on some of the problems people encounter with budgeting. Your budget is a fluid thing and requires periodic updating, no less than once a month you should be sitting down with your spouse or significant other and realigning your budget with the upcoming months requirements. I even know of some people who set weekly budgets to allow for more fluidity in their spending throughout the month. Your spending is going to change from month to month, so should your budget.

Tracking your spending gives you a general idea of where your money went but won’t always predict where it will go in the future. You may not always have the same items in your budget, you may need to add a budget item for a gift for upcoming birthdays or medical procedures.  The key is to constantly be reassessing your needs and wants and adequately budgeting both. Include your savings and debt payments and as your priorities change alter your budgets accordingly.

If you don’t adequately account for your projected spending and realize emergencies happen, you are going to fail to maintain your budget.  Once you start to fail to meet your budget goals you will want to stop budgeting.   Don’t stop budgeting just budget better, learn from your mistakes and do what works for you, eventually you will become a master of your budget, and your finances.

There are so many reason budget can fail to work effectively. Usually they are related to the budget setters not being committed to the budget, just like a diet you have to commit to it, not just go through the motions.

Don’t just take my word for it though, here are several reasons why budgets fail, submitted by the twitter faithful, if you didnt’ get a chance to be included you may not be following me.

@JeremyVoh: Budgets fail like diets fail. People try to make a sudden drastic a change to their lifestyle. Old habits prevail.

@ManVsDebt: People make them too complex. The more simple your budget is the higher probability of you adapting the process as a habit!

@Matt_SF: Budgets fail b/c of frustration. Most people hate to lose, so if they fail once or twice, they simply give up.

@MyLifeROI: Unrealistic goals/expectations

@The_Weakonomist:unplanned expenses have to be the #1 reason.

@llamamoney: Budgets as no fun. If I have to follow a budget, I can’t have what I want right now.

@MoneyManagement: They fail if they are made with unrealistic expectations (same goes for diets!)

@centsiblelife: My best reason budgets fail: no room 4 “stupid mistakes” She Covered her top 5 mistakes on her Blog

@stephonee: Budgets are usually short-sighted and about deprivation. Goal-setting needs to come before budgeting

@gabbysauce: I think individuals have a hard time distinguishing between need and want

@moolanomy: People are trying to change too fast. It takes time to warm up to new habits.

@MattJabs: Budgets fail because people set unrealistic goals and become discouraged

@fiscalfizzle: Had ten reasons budgets fail, they wouldn’t fit in a twit so read it on FiscalFizzle

@TheHappyRock: Failure to plan for ‘unexpected’ or non monthly expenses.

If I were to take only two tips from this list it would be 1.) budgets are like diets, and 2.) don’t make your budget too complex. Remember everyone cheats on their diet every once in a while just don’t go on a binge. And I have no idea why I chose the picture it just struck me as pretty neat.

Photo: (AMagill)

{ 8 comments… read them below or add one }

1 Matt Jabs April 29, 2009 at 10:07 am

I’m good without setting rewards for myself, simply because paying off the debt is the best reward I could have!!

However, for my wife I do random surprise dinners/shopping trips to keep her motivated.

It works like a charm.

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2 SaveBuyLive April 29, 2009 at 11:28 am

You need to go into a budget knowing that it is a work in progress.

When I started budgeting my first budget was bad, really bad. I knew it would be, but I needed a place to start from. I think my budget is pretty mature now, but hiccups still occur. I take them in stride and try to either fix the budget or fix the spending problem.

One key point you mentioned was that you have to actually make a point to USE your budget. I have a friend who tracks all their expenses and then complains that they are spending too much. I ask if they use a budget. Then I get a quizzical stare as if using a budget involves some kind of complex arcane knowledge.

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3 Wojciech @ Fiscal Fizzle April 30, 2009 at 7:39 am

If I had to choose from my top 10, it would be “not accounting for irregular expenses.” Thanks for including my link!

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4 Budgets are Sexy May 1, 2009 at 9:33 am

I second the “do what works for you” part all the way brotha. once you got something up and running, it is SO MUCH EASIER to stay on track every month – it’s that first time creating the budget that’s the hardest ;)

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5 MLR May 1, 2009 at 3:57 pm

Thanks for the include, sir!

Budgeting has so many downfalls, and you, along with us tweeps, outlined a lot of them! :)

MLR

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6 the weakonomist May 2, 2009 at 12:40 pm

Thanks for including my tweet!

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7 MoneyEnergy June 23, 2009 at 6:44 pm

Nice list, it seems wise to boil it down to those two points. Much of it is about psychology and then just management; keeping it simple enough to follow what you’ve set out. Start simple, then gradually make changes as you need to. Nice post!

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8 Amber June 24, 2009 at 9:15 am

I think not accounting for irregular expenses is a big budget killer. I have about a dozen sinking funds that cover expenses that I don’t incur every month.

Much of it is psychology and knowing what mind-games and tricks will keep you in line. My favorite is cash. Tracking is reduced to recording the cash withdrawal and knowing how much is left for that category is reduced to opening the envelope and looking! Psychologically, the fear of running out of cash keeps my spending in check. I could always get more cash or use my debit card, of course (and I have), but I was always keenly aware of what I was doing as I was doing. There was no surprise when I sat down with Quicken a week later.

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