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Have you ever set a budget but struggled to stick to it over time? Have you ever argued with your partner about expenses? Have you ever felt like random bills and expenses messing up your budget despite your best efforts? If so, you are not alone.
Here are the most common reasons I’ve seen budgets fail, and what I suggest instead.
1. You budget without clear objectives
A budget is meant to help you spend less than what you earn and find dollars that you can use to progress toward your goals. Whether you’re working on paying off debt, building an emergency fund, investing for your retirement, or saving for a home, having clear goals allows you to tie your daily budget to what you’ll be able to accomplish in the longer term.
For example, budgeting because you feel you should spend less is very different from budgeting because you want to buy a house in two years time and know that staying on budget is what will get you there.
2. You forget to budget for non-monthly expenses
Non-monthly expenses are things you don’t pay monthly, including
premiums, property taxes, vacations and vacation expenses. Since most of us think about budgeting on a monthly basis, it’s easy to forget about expenses that don’t happen monthly. But in order for your budget to work over time, planning for monthly expenses, not monthly expenses, is essential. In fact, it’s so critical that companies like Monarch Money, Mint, and You Need a Budget are working on ways to help users fit non-monthly expenses into their monthly budgets.
In order to plan for your non-monthly expenses, spend a few minutes adding up all the non-monthly expenses you plan for the next year. Then divide that total by 12 and transfer that amount to a separate, non-monthly savings account. When a non-monthly expense arises, use the money in your non-monthly savings account to cover the cost.
3. You don’t budget for fun
While the bulk of my role as a financial planner is helping clients achieve their goals, I also strongly encourage clients to create a budget that allows them to enjoy life along the way. I find clients to be more successful and more satisfied when they find the right balance between the two. Balancing spending and saving is the key to sustainable progress over time.
For some customers, adding “fun” as a line item to their monthly budget gives them the freedom to spend a little more on whatever brings them joy each month. For others, setting aside some of their bonuses and compensation in stocks to “have fun” helps them get on with life and celebrate their windfall. And some customers just like to have a little extra wiggle room in their entertainment or dining budget to give some flexibility for fun. Different approaches work for different clients, but it’s important to find the right approach for you and have a little fun!
4. You are on another page than your partner
One of the most common areas where client couples disagree is spending. When customers are not on the same page as their partners, it often results in criticism of each other’s spending habits. One of the most important things I do with clients is to help them align with their financial goals so that they feel like they’re part of the same team working on common goals. We also determine how much they need to devote each month to their goals in order to progress. Once they are aligned with their goals and the amount of money needed from their budget to progress, it is much easier to resolve disagreements over spending.
From there, we think about the budget adjustments needed to find the dollars needed for their common goals and decide on the best account structure to support their spending. For example, some couples do better with joints
, while others do better with separate checking accounts, and still others prefer a combination of the two. Finally, we agree on a budgeting system, whether it’s an app, spreadsheet or even money envelopes, that works for both partners.
Above all, know that budgeting takes practice and experimentation – if your budget isn’t working, explore ways to approach it differently to find a system that works. for you.