Do You Hate Budgets?

Budgets … Most of the financial "experts" say that you have to have one in order to succeed financially. They want you to track your spending down to the penny and use that information to decide where to cut costs in order to maintain your family's finances. If this approach works for you, then that's great!!! Budgets can be a very useful tool for you in managing your money. But for most of us, the thought of keeping a detailed budget is not only scary, it's just not achievable. The reasons why are pretty simple.

Maintaining a budget is boring and time consuming work. Think of how much time it takes just to keep your checkbook balanced. To track every single monthly expense down to the penny takes much longer and is extremely tedious, even for those who are Excel-savvy. Programs like Quicken can help, but you still must account for cash expenditures. Then, to make this data-crunching worth anything, it's necessary to consider what percentage of your salary each expense makes up each of these expenses and adjust accordingly. Next, after painstakingly following your budget for months, you'll want to see whether you've met your goals, and once you see that you haven't then you'll find that … budgets are demoralizing.

Let's say you've gone to great effort and carefully put together your budget. Going back through those 6 months of past bills was hard, but you know that it will be worth it. So, you're going to cut back on those coffees at Starbucks and the dinners at your favorite Mexican restaurant. You decide not to splurge on those new shoes or golf clubs and instead are diligently putting money aside for retirement. Six months after your new way of living, you sit down to look over your results. You're prepared to pat yourself on the back for doing such a good job. But then you see that you haven't saved nearly as much as you wanted - and you didn't even get your new shoes!

Does this mean that you haven't budgeted properly? Perhaps that's true if you haven't adequately captured a reoccurring expense like the water bill or if you spend more than budgeted on dinners out. However, something always seems to come up, whether it's $750 in unforeseen car repairs, gas prices going up to $3.00 per gallon overnight, or your property taxes increasing by $1500. No matter how meticulous you are in putting together your budget, it's impossible for you to know everything that's going to come your way.

While most, if not all, financial experts will tell you how important it is to keep to a budget, what they do not tell you is what a disappointment it is when you try very hard to keep to your budget, but fail, for reasons outside your control. Emergency funds (included both in your budget and outside of it) can help to cushion this blow financially, but what can cushion this blow emotionally? You've sacrificed and made choices around your spending, yet you still haven't met your goals. Then you start to think - well, if I can't ever save as much as I want, then why should I even try at all? This is why budgets alone are not the answer.

This doesn't mean that you should spend money frivolously or without thought. In looking at many budgeting programs, what you can see is that one specific budget worksheet doesn't fit all. Maybe you are trying to pay off your student loans, but your neighbor is trying to save for an upcoming wedding. Many times, these budget tools simply do not account for your specific situation. That's why it may make more sense for you to back off of the budget and try a new approach - simply prioritizing your spending based on your individual situation.

Starting this process is easy and doesn't require an MBA or any sort of financial understanding, which means that anyone can do it. The first step is to sit down and prioritize your financial goals. Many of the below items are probably important to you, but they all can't be the most important, so rank the following in importance to you:
-Owning your own home
-Ensuring a comfortable retirement
-Your/your children's education
-Vacations
-Automobile
-Appearance items (clothing, hair, etc)
-Eating out
-Entertainment (cable TV, movies, CDs, etc)
-Reducing your debt (including student loans)
-Saving for a wedding or another big ticket item

Once you have determined your priorities, compare this with your actual spending to determine whether or not your current spending is in-line with your priorities. (These actual spending numbers do not need to be exact - they can be estimated to make this process easier) Next, realign spending so that the levels of money spent are in-line with your personal priorities. A quick example - your children's education could be your 3rd goal (behind owning your own home and ensuring a comfortable retirement), but you are currently not saving towards this goal. In looking at your actual spending, you see that you are spending much more money on eating out and entertainment. You decide to cut back on spending in these areas by a small amount and start saving towards your kids' 529 College Savings Plans.

You can think of this approach like a diet - if you pick a plan that is too hard, you just won't follow it. Money management is the same way. Following a detailed budget can be too time-consuming and difficult for many people. Making prioritized spending choices is something that's easier to do and is something that can be done without a lot of effort (anything that keeps us away from an Excel spreadsheet is a good thing). Next time you think about your money problems, try this simple approach of prioritizing the large items and spending according to your priorities. It may not solve all of your money problems, but it certainly can't hurt.