Budgets – why they don’t pass the stress test

You compiled a budget(s) with the best intentions.  And the budget(s) never quite stuck.  You blamed your weak self-discipline and your lack of motivation.  Let me suggest that there were other factors involved.

Most financial advisors do an annual budget yet people pay their bills once or twice a month.  In reality, the amount that they spend each month varies.  There are expenses that are infrequent which are not planned, like new brakes and tires, as well as infrequent expenses that can be planned, like private school tuition or Christmas gifts and travel.  Unfortunately most people don’t plan for those “bumps” in their spending and often times those expenses are the rocket fuel for their credit card balances.  So what to do?

First, be sure to take the extra steps necessary to capture the infrequent spending that tends to fall off your budget radar:

  • Start first with a good budget template that prompts you to remember ALL your spending.  Contact me directly if you‘d like to see what I forward to my new clients to complete.
  • Go through your credit card and checking accounts statements to look for the months with higher spending.
  • Ideally, you will create a schedule by month for infrequent expenses.

Second, you need to get the money that pays for these large and infrequent expenses out of your checking account.  Otherwise it’s “available balance” as in AVAILABLE to spend.  When you’re uncertain whether to make a purchase do you consult your checking account balance?  If so, do you really know what you need for each week of the month by memory?  Probably not.  So I suggest the following:

  • Figure out what you need for each period of time that you pay bills, weekly or twice a month.  Write the amount down and keep it accessible and easy to retrieve.
  • Calculate what you need each week for the groceries, gas, and lunches etc.
  • Begin setting money aside for your infrequent expenses; get that money out of your checking account.  Send it to a money market account dedicated for this purpose.

With the benefit of more detailed spending data, and better saving habits your budget stands a better chance of survival.  I will talk more about budgets and other steps you need to take in my next blog posts.  For today, these recommendations are a great start on making you more financially secure.

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