It could be disastrous when we go from month to month spending more than what we earn to find out later we dried up our savings. It's certainly a situation we don't want to be in. But oftentimes, it's very difficult to reign in on our spending and we find ourselves in trouble financially.
But why would a budget system not work for us? How does it fail?
If you've ever done any sort of budget for your household, you would basically allot money to particular expenditures. That's what a budget is. You ought to know how much you can spend on a particular item. How much are the bills, expenses on food, clothing, etc.At the end of the day, you want your total expenditure not to exceed a predetermined amount. Why? Because this limit ensures you won't spend more than how much you earn. If you do spend more than you can earn, you'll find yourself getting into debt which you know to be bad. That's why you started doing budgets in the first place.
Root cause of budget failures
From experience, I'd say that budgets fail because of our easy access to cash. We've set our limits but we forgot to guard our money from ourselves. We did not create a system where we can't access our funds once our limit is reached. Most of us have ATM's to have cash readily available whenever we need it. Or worse, we have credit cards for impulsive purchases. That's a situation that wreaks havoc to our budgets.Another equally overlooked fact is how small expenditures can easily add up to significant spending. We are often unmindful of buying small items as long as they are cheap. But if we do this frequently, the total could be surprisingly high to cause a dent to our budget allocation.
In a way, budgeting is about setting a limit and doing everything possible not to exceed that limit. So the solutions to our budgeting woes lies in making sure we are always aware of our budget limitations and that we find it physically difficult to spend the money we have not allocated. Some of the ways we can do this is the following:
1. Cut your credit cards
There are very few instances when a credit card purchase is necessary if you already have cash in hand. We ought to limit the number of credit cards that we have as much as possible. It's not worth tempting our self-restraint by carrying all those cards in our wallets. It invites spending that can get out of control.2. Leave your ATM at home, just have cash
Our ATM's provides easy access to our cash deposits. It's bad for us when we are trying to keep ourselves from spending too much. We can easily overlook how much we've already spent if we are in the habit of withdrawing cash everytime we need money. So a good strategy would be to leave your ATM at home and just carry cash with you.3. Limit bank withdrawals to every payday
The less we go to ATM's for cash withdrawals, the better for our need to control spending. We should aim to get all the cash that we need one time so that we would know exactly how much is left of our budget as we spend the money.We can't just let the bank hold our cash since our account include our savings which we can easily mistake for available funds. So unless you have a separate account for your savings, just withdraw all the cash you need for the half month (if you're getting paid twice a month) and nothing more.
4. Know your limit and how much is left
Monitoring expenditure can be difficult and tedious. I've done it before and have stopped doing it. So instead of recording every single expense, you can easily monitor how much you are left with if you do #2 & #3. It's way much easier and quicker.5. Monitor your monthly performance on a spreadsheet
There's a business insight that says you improve what you monitor. So to improve on your budget compliance, you'll have to monitor your performance on a monthly basis. Are you able to meet your spending limits or are you still failing? You can then change your strategy if you need to in order to improve.These are just some of the ways to do it. If you want to share what you did to make your budget system successful, go ahead and hit the comments below.
*Photo Credit: 401(K) 2013 (Creative Commons)