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If this sounds familiar, keep reading- You just started taking your family finances seriously, and setting down a real budget. But then, life happened. You either forgot something or miscalculations were made and now you’re dealing with the consequences.
The effects of improper budgeting can vary from adding in severity, but most commonly you’ll see it as added debt.
Grabbing money from a savings account, credit card or friend to help supplement the difference in your budget. At best case, you can simply take a little of your funds from another budgeted area (like groceries) to help without adding any new debt to your plate.
The challenges of budget implementation
Creating a budget is a huge asset to your finances. Even millionaires have some form of a budget in place that they can reflect back on to track their money. Budgets don’t tell you what you can/cannot do- they let you keep track of your money and take control of your finances.
I can go on and on about why you need a budget, or how you can create a budget by month or by paycheck. But, if you’re reading this you probably know all of that and are looking for advice on the bad money management issues that you’re currently experiencing.
The effects of improper budgeting can have you feeling scared or frustrated.
While you don’t think about these repercussions when you make the extra pass thru the fast food line or grab that Starbucks coffee on your way to work, the small costs add up and make a big difference.
I mention in my post about budget leaks, how it takes about 3 months to get a budget to come to full fruition and to find all of the “forgotten” bills and subscription payments that often go unnoticed.
While this is still 100% true, and many financial advisors recommend this same advice, I realize that not many go in-depth about how you’re supposed to live during the first few months of budgeting.
Do you just wing it and risk going further in debt, while enabling your bad habits of pulling out a credit card to save you?
Do you live like a hermit inside your home and try to not go anywhere or do anything for fear of costing money?
Honestly, neither of these sound like viable options.
The challenges encountered in budget preparation
Budgeting in today’s economy is definitely a challenge in and of itself, but trying to deal with the financial planning problems and solutions before they even get here is something that may require physic powers.
What is the key to a successful budget?
The best ways to find potential problems when setting budgets is to look back on your financial records for the past 3-6 months. Most banks let you look at your monthly statements online, and print them off as a pdf.
While this is a lot of paper, when you weigh the cost of printing pages with the cost of debt you could incur as a result of added from the effects of improper budgeting, it doesn’t sound nearly as significant.
Print off your statements, and lay them out.
Grab some different colored highlighters and create a color-coded cheat sheet.
For everything that can be labeled as a mandatory bill (something that you must pay) highlight it as one color. Some examples include auto payments, insurance, rent/mortgage, electricity, water.
For all of your impulsive and “extra” purchases, highlight them in a different color. These can include Starbucks, small convenience purchases at the gas station, Amazon purchases that you just “had” to get because it was on sale despite not really needing.
Other categories to cover include food, gas, and miscellaneous.
So your 5 different broad categories:
- Need to pay bills
- Impulsive purchases
Once you have these 5 categories all color-coded in your bank statements, grab a pencil and a lined papered notebook.
Take your notebook and section off 5 pages for these categories, or make 5 columns (your choice).
Go through your bank statements and list out everything that was color-coded into the category it belongs. When you’re done, total up the costs and divide it by the number of months that you have gone through.
What is your average expense spent per category per month?
Budgeting problems can often be made because one doesn’t take into account the average that they spend and they instead decide to simply delegate a number to spend per category.
If you found that your failed budget and your current realizations of your average expenses don’t add up, you will need to adjust your budget for the next month.
For the next few months, until your budget is 100% in effect and perfect -try to live within your averages. You don’t want to be too frugal, and you don’t want to be too daring with your expenses either. Keeping your life as normal as possible helps you to get a real vision of how your budget will work.
After you have your budget up and running smoothly, that’s when you can start trimming costs more. Doing pantry challenges, eating poor food or cutting costs on your electric bills.
Rome wasn’t built in a day, and you didn’t gather all of your debt overnight. You can’t expect it to leave overnight either. As unsatisfying as it is to slowly chip away at getting a budget perfected, it’s the building block and a vital one at that on your quest to debt freedom.
What to do right now while you’re a few dollars behind on bills
Still feeling the sting of the effects of improper budgeting? With an improper budget, you’re short on cash and need to find it somewhere. Low-income families may not get the benefits of being able to pull from another category, so money has to be made quickly.
One of the fastest ways to put money in your hand is to sell something. When you sell your used stuff online, you can have cash in hands within hours.
Side hustles like DoorDash, Instacart, Freelance writing, and cashback rebate apps are all great but may take a while to get the money. For some, you have to wait until you reach a minimum threshold amount before requesting your money and with freelance writing, you may have to wait a few weeks to get your cash.
Do what you have to do, to get the money or if the problem is severe enough, prioritize your bills so that you can at the bare minimum have the more important ones covered.
Contacting companies is also a great idea. A lot will offer a grace period of up to 3 months if you just call them to inform them of your financial struggles or changes in income.
While the effects of improper budgeting may suck, they can be pretty common. Taking the right precautions in advance can help to avoid many if not all of them before they arrive.
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