The word ‘budget’ is often thrown freely whenever people say they need to spend more wisely or when they are in deep trouble like getting trapped in a huge debt.
Some know exactly what budget is, but many take it for granted, mistakenly understanding the term for setting a strict restriction. They often aim to spend money as little as possible without examining their income, spending history, wants and needs accordingly. Which can be unrealistic and only drive them away from setting a proper budget.
Budget is essential to everyone’s life, not just to those who are trapped in huge debts. Even though some of you don’t need to ‘spend wisely’ because you earn a high salary, it’s always wise to have savings, for emergency funds should anything happen, like what we are all having now, the notoriously uncertain pandemic Covid.
What is Budget Exactly?
The Cambridge Dictionary defines budget as:
“a plan to show how much money a person or organization will earn and how much they will need or be able to spend.”
As mentioned in my post here, “Basic Steps on Saving Money”, to save money you have to make sure that your expenses don’t exceed your income.
Where Do You Start When Setting a Budget?
When setting a budget, you shouldn’t just look at how much you earn and spend, but you also need to scrutinise other factors such as your lifestyle, unnecessary expenses that are still occurring, and how much savings you need (or want – or can) set aside.
You will face some challenges when scrutinising unnecessary expenses and may have difficulties to distinguish between wants and needs. Here is a post about how to tell the difference between those two.
Having scrutinised the factors mentioned above, you then decide on how much you want to spend and save on certain things and stick to the plan.
Sticking to Your Budget by Avoiding These:
To be able to stick to any plan, you need to firstly identify the reasons you are having difficulties sticking to it. Here are the most common reasons and how to avoid or solve them:
Not Knowing Why You Need a Budget
This is one of the most common reasons. Why stick to a budget if you don’t see any need for having it? Therefore, setting goals is the very first step to set a budget. These goals shouldn’t just be about short-term goals (paying off debts, buying a new phone, a new car, etc), but also long-term goals (emergency funds, investments, retirement plans, etc).
Setting Budget Too Hastily
Many people often associate a budget with simply a rough plan of how much they earn, how much they can spend and how much they should save. They don’t scrutinise their real needs. As a result, they often make unnecessary ‘sacrifices’ on other more important things.
For example, they think they need to join a gym because there are professionals who can help them with building a training program and help them stay motivated to stick with healthy eating. While this is true, in reality, once someone understands the program and knows what it takes to stay motivated to stick with healthy eating, a gym membership is no longer necessary.
So rather than keep paying the expensive membership fees, the money could be used to buy a bike they never have, to travel somewhere, or to add to their emergency funds, investments, or retirement plans.
Always question yourself which expenses are no longer needed.
Forgetting to Include the Annual (Or Any One-Off) Fees
I tend to forget annual or any other one-off fees (like the 3-year prepayment of web hosting fees) when I make a new budget. This happens when I review my budget for the last three months instead of the whole year (or the previous two-three years).
Always include annual and any other one-off fees in your budget.
Forgetting to Allocate Emergency Expense
There’s nothing more chaotic to a budget than having to pay unexpected expenses like fines, broken washing machine, car repairs, or insurance access fees.
Always set aside some money for emergency expenses.
Setting Unrealistic Budget
This usually comes from a highly motivated person who tends to overlook the possibility that reality may not be the same with what they have in mind. For example, pre-planning a certain amount for coffee for a month, thinking that he/she won’t drink more than certain cups of coffee.
But then life happens. Stress occurs. A few friends come over. More coffee needed. When this type of situation happens, people tend to stray or even abandon their budget altogether. Therefore, when setting a budget, you need to anticipate such things by providing a realistic buffer.
Failing to Review the Budget Regularly
Some people (including me) just record the expenses meticulously and assume they’re on the right track, until the end of some three months slapped by unpleasant surprises that the total expense is higher than what has been budgeted. With this in mind, ideally the budget needs to be reviewed every fortnight, or at least every month, then if the expenses are higher than budgeted, you can remind yourself to stick to the budget the next month.
Underestimating the Power of Temptations
Hanging out with friends and families who do not have a frugal lifestyle or worse, make fun of frugal lifestyle, can be detrimental to your plan to stick to the budget. You don’t have to cut contact with them if it’s impossible, but you can limit and be fully aware of how influential their non-frugal attitude is in your ability to stick with your budget.
Another temptation is credit cards. If you’re using credit cards to pay everything and always remember to pay the total balance off at the end of each month, then it’s OK to have a credit card. Otherwise, it’s just going to be too tempting to spend more than you earn. Getting stuck in a high-interest debt will only make your budget (and life) miserable.
To help you stick to your budget, you can read my other post, “How To Stay Dedicated to No Spend Commitment – 6 Tips“.
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What about you? Do you think you have difficulties sticking with the budget you set? Why? Share your thoughts and experience in the comment box below.
