We are nearing the holiday season, an emotional time when many of us overdo. And if diets have the highest failure rate this time of year, family budgets come in a close second.
Budgets fail during the holidays for similar reasons as the rest of the year. But the pressure to make the most of holiday cheer can test even the most disciplined budgeter.
No matter the season, here are some common ways that people stray from their spending plans, or budget.
• They don’t write everything down. It’s important to track exactly where your money goes by writing down every purchase – from chips and soda at the vending machine to a magazine at the convenience store.
• The planned budget doesn’t reflect reality. If the monthly budget balances based on every meal consisting of peanut butter and jelly sandwiches washed down with a glass of water, that isn’t a formula for success.
• Some people begin budgeting on their computer with tracking software, but find it difficult to use and give up instead of tracking their expenses on paper.
A common excuse I hear from people who don’t follow monthly budgets is that they don’t make enough money. They think they can keep track in their heads how much they can afford to spend each month. But they are constantly running out of money at the end of the month and that is a point where it is tempting to go into debt to maintain their lifestyle.
So, creating a budget, or spending plan, is really about taking control of your financial life. People who often spend more than their income every month don’t realize how much peace of mind they could gain by bringing their expenses in line with their income.
Let’s take holiday expenses as an example of how you can gain control over predictable spending and avoid going into debt to pay for all of the gifts, dinners out and travel that are often a part of the season.
You can budget for next year’s holidays soon after you’ve cleaned up from the most recent celebration. Are you likely to take a plane trip? Put the current fare on the expense side of your budget. Calculate how much you just spent on food, gifts, parties and incidentals during the just-passed season.
If you are comfortable with that total, then you should divide by 12 and make this a line item to set aside as savings in your monthly budget. (It’s not too late to start using this strategy for this year).
Of course, life is going to throw a wrench into the best laid plans. That’s why budgets should include a line item for emergency funds.
But neglecting to plan because we can’t fully predict the future? That’s why budgets fail.