Only 40% of Americans engage in any form of budgeting. I commend those who have some form of budget in place, but a few budgeting methods can undermine your efforts and turn budgeting into a waste of time.
I’ve had some pretty ineffective budgeting methods in my past. As a young adult, I simply didn’t understand the critical components of a good budget. Apathy also played a factor, and over the years these poor methods wasted my time and probably lots of money too.
Stop wasting by learning from my failed methods below and budgeting wisely.
The No Records Budget
Rainman does not need to record expenses. The man can count hundreds of toothpicks in mere seconds. I am not Rainman. Therefore, I need to keep track of things.
My first and least successful budget was the one where I never wrote any of my expenses down. I simply kept a mental, running total.
“OK Shaun, (yes I verbally spoke to myself in third person), I spent roughly $50 yesterday and $25 today. I’m at $75.”
I’d often go over budget because I needed to round numbers in order to keep things simple. I also couldn’t tell you why I would go over budget, even if I wanted to know. Sure, I’d ask myself (in third person) and my answers were usually a best guess theory.
The more complex my finances became, the more frequently I would go over budget, and the higher my budget over-runs would soar. My justification was that I was saving lots of time in not having to budget so it was all worth it in the end, and not tracking things was a convenient way of never proving myself wrong.
The No Limit Budget
I religiously used my expense journal for expenses. I even used my credit card statement to reconcile. I learned my lesson from not tracking expenses. I was on the straight and narrow.
But, detailed as my tracking was, I’d still go over budget. Thanks to my handy tracking system, I even knew why. The problem? I never set any limits to my expenses. What I created was essentially a detailed way of tracking how I overspent every month. All that tracking was a very large waste of time.
The No Look Budget
The budget earning the “largest waste of time award” was the one where I set limits, tracked expenses but didn’t bother to add up the numbers to see where I was. I would often learn of my budgeting failures by whether or not my bank account over-drafted. The No Look Budget is little better than the No Budget Budget only it takes very little time and effort for the No Budget Budget.
The Unused Budget
I’m an Excel whiz. I once created a very elaborate tracking system, complete with charts, graphs and pivot tables. I must have spent hours getting everything perfect. I then proceeded to never use the system.
My budget required too much time and effort to keep up with. After about a week, I lost interest and apathy took over any effort I’d mustered to budget.
The No Goal Budget
Why do we budget? Why don’t we just spend ourselves into oblivion?
The answer is that budgets free up money for retirement and other opportunities, while also eliminating the stress of over-committing our paychecks. Setting goals is essential for identifying those negatives we want to avoid and taking advantage of the positive opportunities we’d like to engage in.
One universal factor in all my failed budgets was a lack of goal setting. My budgets had no direction, so they never went anywhere.
How to Avoid Budgeting that Wastes Time and Money
I was always told that it was smart to have a budget, so I did. I didn’t bother to think about what a budget was, why I should use one and how it could help my finances. Luckily, I learn from my mistakes and now have a great budget and budgeting system. Here is what I learned from all my failed budgets.
- Set Goals – There is a reason why you are budgeting. I can’t tell you what that reason is, because it’s different for everyone. Someone who just wants to spend what she makes without over-drafting her bank account would budget differently than someone who wants to retire by 40 or someone who wants to be debt-free in three years. It’s hard to even begin to approach budgeting if you have no goals in mind, but once you’ve set goals, you’ll find other aspects of budgeting will fall into place.
- Set Limits – One area that is easier to deal with after goals are set are the limits you place on different expenses. That’s because goals inherently necessitate limits: no limits means no way to reach your goals. Set limits and write them down. Change them later if you need to bring them to a more reasonable level.
- Write It Down – If you aren’t tracking your expenses, you can’t measure where you are in relation to your goals and limits. It’s time consuming, but if your goals are worth it, the time commitment will be worth it. If not, perhaps you need to consider different goals.
- Watch It – I suggest reviewing your expenses on a weekly basis. That is usually the shortest period of time for me to incur regular expenses; we grocery shop every week and fill up the gas tank about every week. It’s important to review on a regular basis. Expenses can pile up quickly, leaving you in a crunch at the end of the month. Also, if you blow your budget early on, you are more likely to throw up your hands and spend even more knowing there’s no way to meet your goals.
- Use It – It can take a few budgeting systems to get it right. Perhaps you like Excel, mint.com’s tool or even just a plain old notebook to journal expenses. It doesn’t matter so long as you’ll use it. What use is an unused budget?
The last thing you need when your finances are in dire straits is a budget that makes your situation worse. Learn from the budgeting mistakes above, and put a budget together that doesn’t waste your time or money. Save both!