Budgeting

If budgets don't work for you, we need to talk! There was a time when I thought budgets didn't work for me. I always had something come up that couldn't be predicted. How's a budget going to deal with surprises? I can give you one example after another when a budget didn't work in my life. Then I learned something new. Budgets aren't supposed to control your spending and keep you out of trouble. The only thing controlling your spending is you, but your budget can help you see what you are doing.

Now you want to ask, "If a budget doesn't control your spending, what good is it?" Well, let's look at a budget as something slightly different from what you expect it to be. Let's ask, "If you knew exactly where you spent your money during the last twelve months, and you had a chance to do it all over again, where would you spend your money this time?" In a lot of ways, that is what a budget really is - a better plan for spending money than you had before now.

That explains the first reason why your budget didn't work: You expected it to do something it can't do - control your spending.

The second reason your budget didn't work for you could have been that you expected it to tell you how much you were going to spend on each category of your spending. But when you planned the budget you didn't have a crystal ball to predict the future.

If you plan a budget to guide you as you spend money going forward, don't build it from examples you find on the internet telling you what percent of your take-home pay to spend on each category. Instead, make sure it is based on how you spent money in the past and changes you want to make in the future. You also want to ask yourself some basic questions. Like, "what do you want your money to do during the next twelve months?" If you say you want to have money to pay for a vacation, you need to agree not to spend all your money dining out and buying clothes. Of course there are plenty of things you must spend money for, like groceries, housing, basic utilities, and transportation. But, if you want to do more than pay the basic bills, identify what you want to accomplish with your money and set some goals. When you are about to spend money, ask yourself if this is what you really want to do with your money. And remember your goals.

The third reason your budget didn't work is that you didn't give it any "wiggle room." You used all your money in the plan for your budget and there was no money left for emergencies. Even if you had an emergency fund, you need to have extra money available to re-stock that fund when you need to use it. There's always another emergency waiting just around the corner.

The fourth reason your budget didn't work could be the failure to control individual spending. It's real easy to give yourself permission to buy the latest techno-toy. Or, for someone else in your family to dip their hand in the cookie jar (household cash) to pay for a trip to the ice cream shop. To control this uncontrolled spending, I think it is a good idea to give each person in your family a spending allowance. This is especially true for you, if you are the one planning the budget.

Your spending allowance should include the money you want to spend on clothing, entertainment, gas for your car, dining out, and things you want to buy to make yourself happy. When you give yourself an allowance, you put a spending cap on your every-day spending. If you want to spend more of your allowance on clothing, you have to cut back on something else. If you budget individual spending as an "allowance," your overall household budget doesn't have to keep track of exactly how much you spend on dining out, or clothing. Those details will be controlled by the individual who manages their own spending. This lets everyone in your family learn how to budget.

Everyone in your household should have a spending allowance (suitable for their needs). Young children can't plan too far ahead and will need some help to avoid spending all their money on the first trip to the mall. The important part about your budget is that everyone has their personal spending limited by the spending allowance which they receive every week, two-weeks, or monthly. When they have spent their money, they need to wait until the next allowance will be given out before they have money again. And, using the allowance plan, credit cards need to be treated as a convenience rather than as a loan. When the statement comes, it must be paid off - totally!

You might also consider using the concept of a spending allowance for household items, or to pay expenses for a vacation home. In an accounting system, these would be individual accounts or categories for tracking money. These accounts work just like the personal spending allowance... How much allowance do you want to give your house to spend for yard care, landscaping, and maintenance? If you spend too much on the mowing service, you have to cut back on something else the "house" is spending money on. The idea is to avoid spending more than you "allowed" for the house.

If you set up your budget like I have explained and you also have an allowance for building savings for future needs like children's education, or your own retirement, and you have your emergency fund big enough to handle the type of surprises that happen in your life... (That's a big IF!)... you can expect your budget to work better than it has been.