Did your past budgets fail despite your best effort? Managing monthly expenses is an important part of financial literacy. Reaching money-saving goals that you set requires budgeting your income and the amount you spend on expenses. We often start with good intentions to create a budget. Feeling confident that this month our chequebook will balance until we realize that we have blown the month’s budget. But how?
Consolidate Credit Canada will help you figure out the most common causes of budget failure. Find out where your budget may need revision and adjustments. Find problem areas to fix the mistakes made with budgeting during Novembers Financial Literacy Month.
Reasons Why Budgets Fail
Budgets are not foolproof. You may realize what you have budgeted on paper is not how you want to spend the rest of your life. A personal financial budget should be realistic and comprehensive. Avoid setting yourself up for failure by considering the following:
Set a Time Frame
Identifying specific short, medium, and long-term financial goals. Set monthly spend expectations. Use a calendar to help you get to where you need to go and mark your yearly progress along the way. The problem with budgeting without a timeline is not knowing when you have reached your savings goal. It is the equivalent of running a marathon without having a finish line.
A financial budget may have worked perfectly last season and is no longer applicable this season. It is a good idea to revisit them with an open mind, at least once a quarter. Money supply and inflation factors contribute to bad budgeting of monthly expenses. These factors include fluctuating interest rates on credit cards and financing payment structures.
Track Your Spending
Autopay for monthly and annual expenses from bank accounts has its perks. It saves money by avoiding late fees. Fixed expenses don’t change month to month. However, impulse buying is one of the biggest budgeting mistakes and the easiest to make. Purchasing last-minute inexpensive items along check-out lines add up. The consequences are seen when your spending is tallied at the end of the month.
Expenses Are Higher Than Income
Auditing a budget at the end of the month will tell where a personal budget is not working. Keep receipts for all items purchased is important especially when cash is used instead of credit cards. Recognize that living paycheque to paycheque is a problem. Fixing where a budget went wrong requires a closer look at your spending.
Causes Of Budget Variances
“You’d be surprised at how much money you are essentially wasting each month if you don’t have a detailed budget. In addition to helping you keep your finances in order, having a detailed budget, along with a tracking system for your spending helps you identify these areas of unnecessary spending and overlooked expenses,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Exceeding monthly expenses is the definition of budget failure. Personal budgeting of fixed expenses usually remains steady. Those expenses include auto loans, mortgages, and health insurance to name a few. Budget variances are miscalculations of monthly expenses. They are wrong because the figures exceed the assumption amount in the budget.
Top 5 Budget Variances
1. You Don’t Have An Entertainment Budget
Nothing in life should be all work and no play. Not including a figure for pure entertainment and pleasure is a sure way to fail at budgeting. A simple manicure or a movie once in a while will exceed your projected spend if they are not accounted for.
2. Quarterly & Yearly Membership Dues
The average Canadian spends on one or more internet subscription. The cost of membership subscriptions eats away at budget resources. They provide media streaming services such as music streaming, video services, or news-related content that often overlap. These deductions take chunks out of monthly financial budgeting especially when quarterly and yearly fees are overlooked.
3. Convenience Shopping
This is a discipline problem more than it is considered wasteful budget spending. Running late and forgetting to grab a packed lunch often results in convenience shopping. You visit local Starbucks, La Belle Province, and/or an ATM. It is bad for budgeting.
4. Transportation Costs
The cost of transportation is a common area of budget miscalculation. Especially, if weekend trips upstate and dropping the friend of across town was not previously considered. Living in a metropolitan city is costly when gasoline, street parking, and tolls vary across the state adding on additional fees.
5. Car Maintenance Cost
Calculating yearly car maintenance costs for budgeting is challenging. The difficulty in budgeting for these expenses are that they are dependent upon outside factors. An oil change will depend upon the distance driven set by factory recommendation. Wiper blades, brakes and, air filters are also relative to the frequency of usage and mileage. The cost of regular car maintenance often blows budgets. Budgeting for vehicle maintenance does not include car repair. Maintenance services are all preventive to save money by not having to spend on negligent repair issues in the future.
An emergency fund is one of the most important aspects of budgeting. Financial literacy reminds us of Murphy’s Law- “anything that can go wrong will go wrong”. An emergency fund savings account is a safety net. It is used to fall back upon should unexpected expenses present themselves.
An emergency fund covers unexpected expenses. Loss of employment (income), household emergencies, emergency medical care, and car repair (not car maintenance expenses) are examples of unplanned events. Not having an emergency fund will ensure personal budget planning will fail. It is a problem area that needs to be addressed before the success of monthly budgeting can occur.
November’s Financial Literacy Month is a yearly reminder to Canadian’s of the importance to secure their financial planning. Are you wondering how you might be able to improve your financial situation by getting your budget under control? Is your debt standing in your way? Creating a budget may seem simple, but making it effective is certainly not easy. Call one of our trained credit counsellors at 1-888-826-5898 or check out our free online debt analysis tool to get started.
Related to: Wrong! Monthly Budgeting Mistakes & Why They Fail