So you think you budget? Five reasons you may not be getting ahead

There is a budget. And there is a budget.

The former is what most people have; an outline of income and expenses. It is generally set out monthly or yearly as an overview of a person’s financial position. Many people do a budget and then never look at it again.

The latter is what you need to have if you want to get ahead financially. Not only does it outline income and expenses but it is reviewed regularly and allows for savings, investing and other future plans.

Here are 5 reasons your budget may not be working for you.

1.  Your budget is not written down

It is a scary thing to write down the money going out each week or each fortnight. It can be surprising, upsetting even, when the outgoings are more than what you have coming in. But it is necessary to write it down so it’s out of your head and on paper.   

Most people know how much they earn but few know how much they honestly spend.  

2. You are not sticking to your budget

Say you have allocated $200 for your weekly grocery shop but spend between $250-300 each week. Do this in a few budget categories and your budget is way out, rendering it useless.

Your budget needs to be realistic. If you cannot get your groceries back down to $200 with careful planning, you need to account for the increase in your budget. Of course, this means cutting back somewhere else in your budget.

3.  You haven’t included all your expenses

If your child outgrows his school shoes half-way through the year this needs to be planned for in your budget. It’s not enough to buy shoes at the start of the year and ‘hope for the best’.

Did you forget to include your dentist check-ups in your budget?

What about your subscriptions to Netflix, YouTube, Spotify and Amazon Prime which are debited on random dates each month?

Planning for all your expenses means your budget has a better chance of working.

4.  You haven’t thought about future plans

Budgeting provides us with the ability to smooth our consumption over a period of time. If you know you will need a new car in 2-3 years, you could just wait until the time comes and get a car loan, right? Or take money out of your emergency fund (please try not to do this). Or you could smooth the cost of the car out over 2-3 years and save the money in bite-size pieces.  

This goes for many other things: getting married, going on a holiday, going on maternity leave, buying new furniture, attending a music concert, getting a new laptop, Christmas spending and the list goes on.

Sure, you can’t plan for everything which brings us to the last point:

5.  You don’t have an emergency fund  

An emergency fund is key to ensuring you stay on track with your budget. If you do not have an emergency fund and life takes an unexpected turn, your finances and your budget will take a hit.

The general recommendation is to have a 3-6 month emergency fund. Whether you opt for 3 or 6 months will depend on your own personal situation. It helps me sleep a little better at night knowing we have 6+ months of expenses set aside for life’s true emergencies.

And there you have it: 5 reasons why your budget may not be working.

Challenge yourself – take a good look at your budget and see if any of these reasons ring true for you. Remember to review your budget regularly and you will soon know where you need to make changes to improve your financial health.