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Is Your Budget Failing? 5 Ways to Fix It
Is Your Budget Failing? 5 Ways to Fix It
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Money Management

Is Your Budget Failing? 5 Ways to Fix It

Money254
Doreen Gathoni
March 7, 2022

It’s a harsh reality that most people have experienced the arm-twisting of a failing budget, either due to unexpected expenses or poor financial discipline. 

Locally, the public outcry about the current high cost of living has rendered many personal budgets impractical due to the high inflation rate. 

Conversations about the future may raise questions like, “Is financial planning now a maybe? Is this the right time to start or stick to a budget?" 

Yes, these are reasonable concerns but do note that you’re on the right path by having a budget: a roll-the-dice attitude is not how to get ahead, even when things get tough.

Your best bet is to start by defining a failing budget by looking into what a successful budget is as follows:- 

A successful budget is a budget that works as a practical guide to your cash flow. It should be realistic, well planned, flexible, and clearly outlined; to adequately meet your plans. 

A failing budget then is a budget that is not practical and does not serve to help you achieve your current and future financial goals and obligations.

Now, let's get into why a budget fails and how to revise a budget that is failing.

1. Unplanned Costly Emergencies

The meaning of emergency is relative to each person: yet all emergencies have one thing in common, there is no notice! 

Despite this fact - this point is about the two ways a budgeting emergency plays out. Either you have no financial safety net in the event of emergencies, or your emergency fund cannot cover existing or possible emergencies. 

These scenarios further derail your budget goals because they redirect funds from existing financial plans.

Here’s an example; say you lose your job, this would mean reduced or no income for an unknown time. 

Consequently, you might have to take a loan to meet your fixed expenses such as rent and groceries and this will derail your savings and investment goals and increase your debt. 

Solution

Understandably, by the very definition of an emergency - it may seem impossible to plan for the unexpected. 

However, there are steps to make sure you have a financial safety net by setting up an emergency fund that is realistic to your financial situation. 

Below are the key things to keep in mind:- 

  • Ensure that a percentage of your income is set aside to build an emergency fund until the fund sum is at least three to six months’ worth of expenses. You can start by allocating a bigger percentage and reduce it through the months as you get closer to your goal. 
  • Don’t forget to plan for what you enjoy. Include unexpected costs, for example, money for clothing, birthdays, school or work items and so on.
  • Remember to direct any extra income towards your emergency fund and savings first, before spending it. 

2. Inflation

Did you know that inflation not only leads to goods and services price increase, but it also lowers purchasing power and reduces the value of savings, over time?

Understandably, where inflation is the “budget villain,” it’s not your fault; however, it is your responsibility to make sure it doesn’t destabilise your financial goals.

Solution

Planning for the effects of inflation is a great way to cushion yourself. You, for example, want to choose a savings account that offers an interest rate higher than the previous year’s annual inflation rate. 

The same goes for any investments you choose to put your money in, including the money market funds, real estate or stock market. 

Then there is the very necessary need to readjust your budget to reflect the prevailing inflationary disruptions. While your rent will typically not be affected by inflation immediately, the cost of food, everyday expenses including even entertainment and leisure will. 

Here is where the 50/30/20 budgeting rule can come in handy. The idea is to never be unable to afford your needs but also continue saving up for your financial goals, which means the 20% for wants may need to be moved around between needs and savings. 

Learn more about the 50/30/20 budgeting rule here

3. Your Budget Is Not Realistic

Budgeting may feel like a dull and discouraging task, like most essential tasks in life.

I have a hack to get through my budgeting to-dos. I think, or sometimes shout out this phrase to keep me focused and motivated, "Budgeting isn't about limiting myself; it's about making the things that I enjoy possible".

With this phrase in mind, it makes it easier to identify if your budget is unrealistic. 

Next, look out for whether these two budget features exist. 

  • Is your budget flexible?
  • Does your budget enable you to track expenses, build an emergency fund, save, invest and pay bills on time?

If your budget doesn’t have one or both of these features, take the time to rethink it and include them.

Solution 

Set realistic amounts for each item on your budget and evaluate your ability to follow through with the changes. 

Take it a day at a time. You won't change overnight, so give yourself at least a few months to get used to your budget. Be patient and stick to your new budget.

  • To start, set your budgetary expectations based on how much money you make. You should also budget for any incremental income you may be expecting during the month to avoid wastage such as a bonus, commission etc. 
  • Learn to improve your money management skills, increase your financial awareness, and change your financial habits for the better.
  • Don’t let the idea of having to re-do your budget stress you out - every budget must be reviewed and adjusted every now and then anyway. 

Focus on not getting stuck in negative self-talk when unsuccessful; get back to trying until you get used to your new budget. 

4. You Are Unaware Of Your Financial Habits 

“I believe that through knowledge and discipline, financial peace is possible for all of us.”
-Dave Ramsey-

Even as the good book says My people are destroyed for lack of knowledge, ignorance is the biggest enemy to financial progress. You may be surprised by how unaware you may be of the debilitating financial habits even though you are earning and spending your own money. 

Solution

One of the best ways to get in touch with your financial habits is to do a complete financial self audit every few months. The first audit of your finances is to do it honestly and make it as detailed as possible. This will bring forth the habits that may be bleeding you dry and those that have a positive effect on your financial health. 

Learn more: How to do a complete financial self-audit 

It is advisable to consider getting the help of a financial counsellor or advisor to truly identify your most natural financial habits and come up with a plan on how to overcome them. 

They can expertly identify your financial strengths, challenges and triggers to guide you towards creating, revising and sticking to a realistic budget.

5. Lack Of Cooperation From Involved Participants (Family Or Not)

“The people we spend time with influence our spending habits for better or worse”

Financial experts warn that if those closest to you aren’t on board with your budget strategy, you are likely to have a tough time sticking to a budget.

There are many situations where a shared budget is in play, and the efforts of all persons involved dictate the success of budget goals. 

However, before we dive into how this point is a reason for a budget to fail, below are examples where shared budget efforts apply:-

  • Family setting.  
  • Shared living arrangements, for instance, if you have roommates.
  • Short-term scenarios, like a 3-week road trip with friends or colleagues’ where either a budget is shared or each participant has an assigned budget, for everything to go smoothly.

When dealing with such situations, you may favour the idea to cut people off. However, this is counterproductive and only serves to cause financial stress. 

Solution

To start, identify the uncooperative person(s) before sharing any budgeting plans. Here's how to go about it.

  • Once you identify those unwilling to cooperate - have a cordial, prompt and clear conversation to understand the source of conflict. 
  • Figure out a way to communicate just how sticking to a budget is a win-win for all by ensuring everyone is on the same page. 
  • Identify practical solutions and execute them, whether that means cutting ties, reassigning budgeting roles and so on. If you’re the uncooperative one, the above applies to you too.
  • Next, be clear on your budgeting goals. Some examples of personal budget goals include buying a home, pursuing further education, travelling more - to name a few.

When you are transparent and communicate clearly, you encourage those involved to proactively contribute towards better budget control, even in unexpected instances. 

  • Follow-through is crucial to the success of short-term and long-term goals - Let’s say your family budget plans are receiving pushback. The noncooperation you're experiencing from family members is not a reason to eliminate them from family budget discussions. It's an opportunity to focus on maximising each family member’s strengths to re-focus and reassign budget tasks whilst balancing out their weaknesses.

Bottom Line: If Plan A Does Not Work. Keep Going 

Though budgets can be tricky to navigate, it is a necessary yet beneficial financial tool that keeps on giving. 

Budgeting is a proactive exercise to help you optimise all that your money can do for a better and more balanced lifestyle.

So, if after reading this you’re asking yourself whether it’s too late to fix your budget, the good news is that it’s never too late. 

Keep your budget goals in mind, and soon you’ll get into the rhythm of your amended budget.

Remember,

"A person either disciplines his finances or his finances disciplines him."
 -Orrin Woodward-

Gathoni is a skilled content developer with over 5 years of experience in content development as a graphic design and copywriter, in different industry sectors. Her passion to nurture positive, stronger, communication impact continues. You can find her on LinkedIn here.

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