Budget. Just the word makes a lot of people stop paying attention, and that’s a shame because a budget (I prefer “spending plan”) is the most effective way to create the financial life that you desire.
Most people have tried to use a budget at some point in their lives, and very few people stick with it. Why is it so easy to quit budgeting, and how can you overcome the obstacles?
There are a million reasons why people don’t stick with budgets:
- Their budget is too complicated,
- They are busy,
- They don’t understand how a budget works,
- They expect immediate results,
- They don’t have goals,
- Their budget is unrealistic/too restrictive,
- They think that they don’t have to plan their spending because they can pay their bills.
On one hand, it is can be useful to figure out what is keeping you from using a budget. On the other hand, the problem doesn’t matter as much as the solution.
You’ve Got To Have Goals
If you don’t have the desired end-state, there’s no motivation to stick to a budget. For example, when my husband and I were newlyweds, we greatly desired to pay off all our consumer debt. It was easy to be focused when we had that goal. Once we paid off our credit cards and car loans, we didn’t know what to do next. We just spent what we made until we figured out our next goals.
Before you even start budgeting, you should take a few minutes and figure out what you really want. Some people call it “figuring out their why.” Think short-term, medium-term and long-term. Some short-term goals might include not running out of money during the month, paying off everything that is past due, or making sure that you have enough money for an expense that is coming up within the next month or two. Common medium-term goals are paying off your credit cards, building up an emergency fund, or going on a vacation. Long-term goals would be things like retiring, paying for your children’s college, or buying a house.
Keep It Simple, and Give It Time
A complicated budget is a budget just waiting to be ignored. Start small, but define small by what you can actually handle. Some people are happy to dive right into a year-long budget that includes all their irregular expenses, aggressive spending cuts, and huge savings goals. That’s pretty rare. You may need to start just by planning out how you’ll spend your next paycheck, and add to that as you become more confident and skilled.
Creating a livable, comprehensive budget isn’t a quick process, and you’re never really done. Most people find that it takes several months to really see what works for them, and then the plan needs to be constantly changed to meet the changes happening in your life. Don’t give up before you’ve given it time to become a habit.
Some things to consider as you build your budget:
- Irregular expenses such auto insurance, school supplies, pool memberships, Christmas expenses, club dues, vet bills.
- Any variations in income across the year, including any months where you get three paychecks.
- Debt repayment.
- Savings goals.
Stop Using Credit
There are two major reasons to work with a cash-based budget: not accruing additional debt, and being aware of what you’re spending. Once you’ve figured out what you plan to spend in each category, withdraw cash from your bank account to pay those expenses. When you’re out of cash, you have to stop spending.
Spending cash doesn’t have to mean physical cash, as some purchases aren’t suited for cash. In this case, debit cards and checks serve some of the same purposes. Keep in mind, however, that studies show that consumers spend more money when they use any form of non-cash payment.
Use these strategies to build a spending plan that you can actually use. More important, it will be a spending plan that you’ll stick with!