Three Out of Five Americans HATE This Word

Dear Rich Lifer,

Here’s an interesting bit of trivia – according to a study done by U.S. Bank, up to 41% of Americans keep track of their finances with a budget.

That’s good, but… 

That means that 59% of people DON’T even attempt to allocate their funds wisely every month. 

In other words, three out of every five adult Americans just spend their money haphazardly every month. 

They never make progress towards any monetary goals – in fact, they don’t even know where to begin!

This problem is not uncommon, but it’s also not difficult to fix. Within just a few months of instituting a budget, you can see big changes. 

If you’re one of the three out of five, you might not believe that, but that’s ok. 

Budgets can work for you. If they’ve never worked in the past, that doesn’t mean the whole concept is flawed…

It just means there’s probably a reason why budgeting has never worked for you in the past. 

Here are the most common problems people have with their budgets – and how to fix them.

You Created Your Budget With Bad Information

When many people sit down to create a budget, they look to the last month of expenses – or worse, they use their best guess to fill in the categories they can remember.

“Let’s see, the mortgage is always $2300, I know that… How much is electric – let’s say it’s $150 a month.”

That’s a good start, but the reality is that bills change and basing information off your mental estimates or a month or two of data is a sure way to wind up with a nasty surprise when summer rolls around and AC costs send your electric bill soaring, for example.

Instead, take all the statements from the last year – or better yet, the last two years – and look at your regular expenses. Then, for all regular expenses that aren’t fixed (like the mortgage), create an average. Sure, you’ll have some months that will be lower, but you’ll also have the money sitting there to pay for the months that are unexpectedly higher. Better to have too much than to be caught short. 

Your Budget Is Too Restrictive

The word budget can feel like a dirty word. It sounds like no frills, no fun, no life – but that’s because people construct their budgets wrong. 

In addition to the mortgage, the utilities, and other serious categories like gas and medical costs, you must also “fund your fun”. This means you’ve got to create categories for the things in life you enjoy, too. 

Think about it – if you love eating out, or if gardening is the thing that brings you the most joy in life, and you strip those away with your budget, you’ll probably stick to it for a short period of time, but then you’re likely to break it as soon as you need a breather. 

That will cause you to feel bad about the things you enjoy, and it creates resentment for your budget. At that point, it’s not too long until you quit the whole program entirely – who wants to do something that makes them feel repressed and guilty all the time?

When you create your budget, make room for the things you love. This way, a budget can support your life – not restrict it. When all your bills are paid, you’re adding to savings, and you still have money earmarked for enjoyment, your budget will feel freeing – and that’s something you’ll want to stick to. 

You Have No Goal In Mind

Saving money is a very lofty goal. Just like “getting into shape” or “eating healthier,” it’s a very nebulous intention that sounds good to everyone… but in the end, it works for no one. 

Without a goal in mind, the first time you meet with resistance, you’re that much more likely to give up – or, more likely, cheat little by little until you declare that budgeting  “doesn’t work” for you. 

On the other hand, if you’re trying to save $50,000 for your child’s college fund, or sock away $2 Million so you can retire comfortably, or even just save $10,000 to take a world-class vacation, that reason will be enough to keep you from making those decisions that lead to cheating on your budget. 

Create an overall “why” for your budget. If you want to add smaller, additional goals along the way (Christmas, anyone?), you can add separate line items or accounts for those, too. Once you see those balances going up, and you can see success in your future, your budget won’t feel like a thankless chore – it will feel like you’re saving for a good reason. 

You Didn’t Allow For Life To Happen

If you’ve accounted for everything you can think of, and added line items for everything from groceries to a fun vacation fund, things will go well – for awhile. 

As soon as you blow a tire or have an unexpectedly large vet bill – or worst of all, lose your job – though, your carefully crafted budget will fall apart if you don’t have money set aside to help out when life happens. 

The first thing you should fund when you make your budget is an emergency fund. Start with $1000, and then slowly work your way up until you have 3-6 months’ worth of income put away. That way, you’ll still be saving and sticking to your budget – but you’ll also be prepared for anything life can throw your way. 

Your Tracking Is Too Complicated

It’s 2020. Just about every aspect of our lives is online and available via app… so why are so many of us using old, complicated methods of organizing our financial lives? 

I get it – if you learned how to balance a checkbook back in the day, or if you’re concerned about sharing your sensitive data all over the place, the thought of using an app to manage your budget can be unnerving.

But on the other hand, if filing your receipts and entering them into a spreadsheet by hand is so elaborate that it never gets done…Then what good is it?

There are a number of safe apps and programs you can use that will sort your transactions and file them by category for you. Mint.com from Intuit, for example, is just as secure as your bank’s website, so you don’t have to worry about them losing your data. 

If you can make your budget easy to see and understand, then it’ll be that much easier to implement, too. 

Saving money for your big life goals and still living comfortably day to day is possible. With a strong budget, you can make it happen. Avoid these common pitfalls and see just how easy sticking to your budget can be.

To a richer life,

Nilus Mattive

Nilus Mattive

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Nilus Mattive

Nilus is the editor for the daily e-letter The Rich Life Roadmap and a Paradigm Press analyst.

Nilus began his professional career at Jono Steinberg’s Individual Investor Group, where he published his original research through a regular investment column. Later, he worked for a private equity business and spent five years editing Standard and Poor’s...

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