Why Budgets Don’t Work
Budgets have been around for centuries. Some people hate them. Some people love them. Most people just ignore them. But why do they cause so much strife?
Budgets are like diets. They provide the formula, but not the action. And not all of them work for everybody.
What are Budgets?
Budgets are simply a way of saying to yourself, “Spend less than I earn.” Ouch! That is actually painful. You just told yourself “No.” But actually writing down your budget is so much worse – budgets shine a big giant spotlight on your spending and point out what you are doing wrong. In essence, budgets judge us. And we don’t like to be judged. Mostly because it makes us accountable for our own actions. And it is much easier to blame:
- the economy
- our boss
- our spouse
- our kids
warming coolingclimate change
- the president we voted for
- the president we didn’t vote for
- and on and on
So the reason budgets don’t work, is for 2 big reasons:
- We don’t like being judged
- We don’t take action
Remove the Judgment
So let’s change the semantics a bit. Let’s not look at budgets anymore. But let’s create a spending plan instead. What’s the difference? The title at the top of the page – remove the word ‘budget’ and replace it with the phrase ‘spending plan’. Problem solved.
Now on to the second issue of taking action. Well, all we need to do is… what? We are not done with the first one?
Okay. Think of your budget not as something that tells you “no,” but as something that tells you “how you can achieve your goals.” For instance, if you want a vacation next year and it will cost $3,000 then your budget is what helps you achieve that goal. You are not saying “No” to dining out next week, you are saying “yes” to your $3,000 vacation next summer! By not dining out, you are able to save an additional $50 towards your vacation goal. See? It’s a spending plan. It is only a matter of prioritizing.
Now, you may not like the amount of money you are working with, but that is a different issue (see the section of our website called “Increase Your Income“). You may want or need to create a side business or get a side job temporarily to increase your income for a period of time. But you won’t really know that until you create your
budget spending plan. Or maybe your plan will tell you that you don’t need a second income!
How do you actually take action? I mean it is one thing to write down a pretend budget, but it is something entirely different once you try to actually stick with it. But it is not your fault. The moment you decide to start on a budget:
- Your kid gets sick
- Your puppy gets sick
- Your kid gets sick of your puppy
- Your refrigerator breaks
- Your car breaks down
- Your roof needs repaired
- You need to file a car insurance claim (even though it was the deer’s fault)
The point is that these things happen… to everyone. Not just you. The universe is not out to get you. God doesn’t see you as His personal court jester (although your spouse might). Mother nature doesn’t view you as a ping pong ball. Things. Just. Happen. So we need to plan for it.
- Set your goals
- List your income
- List your fixed expenses (mortgage, car payment, etc.)
- List your variable expenses (food, clothing, etc.)
- List annual expenses (gifts, membership renewals, dues, etc.)
- Subtract expenses from your income and see how much is left over for goals
If you have enough leftover for your goals, then you are in great shape! But if you are human, then most likely there is very little leftover, or you have a negative number. Now what?
Evaluate Your Priorities
It’s time to prioritize!
1Change your goals until they fit within your budget.
That doesn’t seem very fun, but maybe just for the short-term…
2Decrease your fixed expenses:
- Move to a cheaper apartment
- Downgrade your car
- Refinance your mortgage
- Change insurance carriers
- Refinance your car loan
- Transfer your credit card balances to a lower rate card
- Check out our post Save Money from Previous Mistakes for more ideas
By decreasing your fixed expenses you immediately free up more money each month that you can use towards your goals.
3Decrease your variable expenses.
Stop eating! Okay, at least decrease the amount you are spending on dining out, be more energy conscious (I always leave my lights on for some reason…), and shop more carefully for bargains on clothes and other household goods. For more ideas see our article The Top 5 Ways to Save $1,000 in 2 hours Without Sacrificing Anything.
The point is that you can decide if your goals are more important, or if these variable expenses are more important.
4Increase your income.
This is the last and most extreme situation. I would be reluctant to immediate try to increase your income unless you are in one of these situations:
- You already have your budget in balance and just want to increase your lifestyle
- You cannot make your monthly payments due to basic life necessities being too expensive (extremely low-income for your area)
- You cannot comfortably make your monthly payments because you have too much debt
If number one is your situation, then now is the time to start looking for a side business, or you can start a blog. If number 2 or 3 is your situation, then you may need to take immediate action by getting a second job, or improving your skills to better your career. That advice is outside the scope of this article, but if you want some tips on networking, see this article.
Budgets on Autopilot
Once you go through this quick exercise and align your income and goals, it’s time to take it to the next level – where you no longer have to do any budgeting! Do what the personal finance pros do and put your finances on autopilot using these three simple methods.
- The 3 Steps to End Budgeting for Good – Step 1: The Automatic Account Solution
- Step 2 – The 20% Solution to End the Need for Budgeting
- Step 3 The Goal Prioritizing Solution (GPS)
As part of my blogging journey, I have started to join in on some link parties. Here are some below: