Samuel Peery believes there are three reasons most budgets don’t work.
Most people get too discouraged trying to get a budget to work. They spend hours trying to figure out how much to budget in each category and may even track every penny spent during the month only to find out that reality didn’t match what was budgeted. In these instances budgeting just seems like a futile theoretical exercise. There’s no follow up or reconciliation to tie one month’s budget to the next. Add to this the emotional issues that budgeting can trigger and your chances of maintaining a budget dive bomb. Many people who get to this point just give up and quit.
Peery says that the the major problems with common budgets are:
- They don’t reflect reality. “Budgeting is an exercise in being wrong,” Peery says. Budget amounts are estimates. They’re targets. Especially at the start of a budget, you’re going to be off. Your numbers will get closer as time goes on, but they’ll never match perfectly with your expectations.
- They don’t connect from one month to the next. Expenditures are not static. They’re dynamic, changing from month-to-month. Most budgets don’t reflect this; they assume constant spending in every category. Also, you’ll have budget surpluses and shortfalls that carry over from one month to the next.
- They don’t track the surplus money left over after all the categories are filled. For a budget to work, Peery says, you must track all of your money, even the stuff left over after you’ve budgeted for necessities.
Peery offers advice on how to compensate for these budgeting problems. He pulls ideas from personal finance gurus like Dave Ramsey, as well as self-development folk like Stephen R. Covey and David Allen.
Specifically, Peery recommends that you:
- Implement a zero-based budget.
- Allocate every dollar you earn.
- Include a buffer category for minor inaccuracies.
- Budget realistic amounts for necessities.
- Realize your spending won’t match your budget.
- Perform a monthly analysis of planned spending vs. actual spending.
For greater detail, read three reasons most budgets don’t work (and how to fix them).
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