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Why Your Budgeting Is Keeping You Off Track

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Creating a budget is like approaching the scale and weighing yourself: You have a number in your mind of how much you think you weigh, but you’re also scared to death that if you step on that scale, it’s going to confirm your worst fear. Facing your budget can conjure this same feeling of apprehension: You think you’re saving enough and spending within your means, but you have a slight bit of fear to see how you’ve realistically been spending and saving. So what usually ends up happening?

You either avoid your financial health all together, or, just like yo-yo diets, you’re on a yo-yo budget.

Like stepping on the weight scale, some months you are up and some months you are down. It is an emotional battle. You may have started off great by reducing dining out the first month after you created a budget. You feel committed and dedicated to reaching your goals!

After two or three months into your money diet, of sorts, you start to get a little hungry again. You see a little bit of progress so you decide to “treat yourself.” You may think, “I’ve been doing well. I’m going to go out a couple more times. No big deal.” Before you know it, you’re back to your old spending habits.

As a financial planner who has worked with numerous clients and seen their personal struggles with the emotional highs and lows of money management, I am familiar with the perils of diet-style budgeting.

Here are four simple reasons why your budget may be pushing you farther from your goals:

1.       Certain expenses are unaccounted for due to being non-recurring each month.

 The budget you created may be inaccurate. Why? It probably doesn’t account for miscellaneous expenses you may have throughout the year that are non-recurring. Most people only put their most common expenses, such as groceries, beauty, rent, utilities, etc., into their budget sheet. They don’t account for the gifts they spend on holidays, weddings, events throughout the year, small donations they make here and there, and so on. Those one-off, non-recurring items add up throughout the year and could be why, despite seeing spending in certain categories go down, you don’t have as much money month after month.

It’s draining to account for every expense. Instead, establish a miscellaneous section and overestimate the amount you would be spending in this category. It’s better to overestimate so that you aren’t caught off guard.

2.       You try to do too much at once.

 Many of us try to cut out too much, too fast. Why? We want to fix it now! There are hundreds of different weight-loss diets out there just like there are hundreds of budget worksheets you can download. They don’t work because it encourages you to deprive yourself of too much too quickly. It’ll tell you to cut out fat, carbs, and sugar all at once, just like a budget sheet may tell you to cut out spending on your favorite activities simultaneously. Stop going on these aggressive “crash” spending diets.

Change takes courage and time. Making money is very difficult and keeping it is even harder.

Start by changing one saving or spending habit over a three-month period to start, and then check your accounts or net worth statement again to see how it has been affected. Then set another three-month benchmark. Before you know it, you will see how changing one simple habit positively affects your overall wealth. By doing this, you won’t feel like you’re cutting too much out of your life or depriving yourself completely.

3.       Your priorities are out of order.

An oldie but goodie: Save first, spend what’s left over. Look at it this way: You are priority number one, so pay yourself before others. Then, whatever is left over, you can let the world consume.

If you’re saving into a 401(k), then you’re already slightly ahead of the curve. Take it a step further and save a bit more for yourself out of your paycheck, even if it’s just 1% of your take-home income to start. Get into developing this self-rewarding habit and you’ll see how quickly your account accumulates. Make sure you stash it in an account that isn’t easily accessible so that you won’t have the temptation to touch it.

With some of my clients, I open and manage a savings account for them. The only way that they can get their funds is to contact me and verbally request the funds; then I send it electronically to them. I never say no when they request it, but it is another layer of accountability that helps them keep their money there. They dread calling me asking for their own money!

4.       You look at your “budget” too often

Stop looking at your budget every time you spend a cent! Instead of looking at your line-by-line expenses frequently, look at your net worth. Your net worth statement is a much healthier and more easily understandable measuring stick than your budget. Plus, it reflects how you truly are doing in meeting your long term goals. View your individual expense columns when the balance continues to go out of your favor to see if there is a negative spending pattern in certain categories.

Constantly referring back to your budget is like trying on those pants you have in the back of your closet that you’ve been promising yourself to fit into “one day.” In general, it’s more important that your net worth is increasing because it actually shows whether you’re building wealth.


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