Photo (cc) by Rafael Souza ®
As has been famously said, failing to plan is planning to fail. And Americans definitely fit the bill as we tend to spend first, worry later and finance the rest. According to a poll by Gallup, only 32 percent of Americans have a budget that tracks their monthly income and expenses.
That leaves 68 percent of the population without a realistic spending plan, and susceptible to an overwhelming amount of debt and subsequent financial meltdown.
Assuming you are among the group that sits down to come up with a budget each month, how’s it working out for you? If your response is “not so well,” I have a few reasons why to share with you.
1. It’s completely unrealistic
If you find yourself running out of funds days before the month ends, there is a significant chance that you are underestimating or omitting items from your budget.
Do you travel to work via car? Be sure to incorporate gas money into your budget. What about food? How much do you typically spend in the grocery store each week? You may be able to make a few cuts here and there, but failing to include grocery expenditures in your budget is a recipe for disaster.
The point I’m trying to make is that if you know you’re going to spend it, don’t omit it just to make yourself feel better. On the contrary, if you have no idea how much you spend on certain items, now’s the time to start tracking your expenditures for at least one month. What you discover may just be startling.
2. You fail to save
A survey last year for Bankrate.com indicated that 28 percent of Americans have no emergency fund and another 21 percent have some savings but not enough to keep them going for three months if they lost a job. That’s unsettling, especially considering the turbulent economic times we’ve been through.
What do car and home repairs, family emergencies and layoffs have in common? They can be devastating to your finances, particularly if you are unprepared. And in many instances, they are unexpected occurrences that can leave you totally blindsided.
I often hear people griping about how pointless budgets are because all the money gets spent so quickly. My response is simple: Budget for planned expenses and also create a cushion or emergency fund.
If this is a tough area for you, start small and work your way up. Need help doing so? Check out our tips on how to build an emergency fund on a limited income.
3. Your wish is your command
If you want it, you get it. You have a reckless disregard for how much you can afford to spend on non-necessities, your variable expenses are out of control, and you lack discipline. Girls night out on the town? Most certainly. Trip to Vegas with the guys? No doubt, regardless of whether or not you can afford it.
Newsflash: Your budget will never work if you fail to get your spending under control and refrain from indulging in activities that you cannot afford. I’m not suggesting that you deprive yourself of all the wonderful things life has to offer, but indulge in moderation and your efforts will pay off in the long run.
Try swapping a costly night out with the ladies for a movie night at the house. Also, try a staycation in lieu of the $2,000 getaway. Your wallet and financial future will thank you.
4. You have no wiggle room
Whether you’ve come to terms with it or not, prices on some of the most commonly consumed items fluctuate. Think about gas, food and prescription drug costs, just to name a few. Ever walked down the breakfast aisle of the grocery store and discovered that your favorite cereal is now $1 more per box?
Your budget must be prepared to withstand the increases. Since a dollar more here and there can add up rather quickly, create a slight cushion in your budget to absorb these occurrences.
Need help creating a budget that works? Find out how to develop a spending plan you can not only live with but actually embrace.
Which budgeting tricks do you use to successfully make it through the month? Let us know in the comments below or on our Facebook page.