How Can Budgets Be Mismanaged Or Misunderstood?

You’ve carefully crafted a detailed budget, but how can budgets be mismanaged or misunderstood? The best intentions mean little without the right management.  Making plans and spreadsheets are not enough.  So, what can go wrong?

  1. Emergencies. The road to hell is paved with good intentions, so goes the old adage. Budgeting is no exception. Allow a cushion for the unexpected. Cars break down, kids get sick, life happens. Budgets must reflect the possibility of unexpected things. The alternative is that one such emergency can throw the entire plan into chaos. So, what’s the answer? Slip a little extra cash into an emergency fund every time you get paid. The good news is, the longer you go without an emergency, the bigger the fund gets.
  2. That old right hand and left hand thing. Two people living on a budget is a good thing. When two people dip into the same money pool without accounting to each other, disaster looms. Make absolutely sure to communicate daily about expenditures, especially if you have a joint account. One option? Separate accounts, or use a cash only system for small expenditures. Know each other’s habits and budget for them. Even small purchases like a daily latte add up fast.
  3. Failure to allow for flexibility. Dieters know this truth: strict rules and unrealistic expectations add up to failure. The same holds true for budgets. Extreme frugality is nobody’s friend. Fun and relaxing must be factored in. Tight restrictions with no room for entertainment make the budget feel like a punishment.  Temptation to cheat is much stronger when there is no room for fun. Choose budget-friendly fun instead. Take in a pay-per-view Friday night. Save going out for a once a month treat.
  4. Laziness. Let’s face it, one of the biggest budget breakers boils down to old fashioned laziness. Old habits are incredibly hard to break. Money habits run deep; it’s hard to break the cycle. Budget mismanagement is often a result taking the easy way out. Grabbing a pizza on the way home is easier than whipping a quick meal up at home. While one pizza will not derail a budget, spending extra money adds up quickly. 
  5. The perils of plastic. There is something almost therapeutic about the quick swipe of plastic at the register. Just one little swipe, and the world is yours.  Convenience, especially in an already hectic lifestyle, is never free. The plastic habit makes it too easy to get something without a fair representation of the cost.  Plastic also opens up the world of paying for acquiring things you really do not need. Debit cards are a good alternative to plastic, as long as you remember to account for every purchase.

Remember, a good attitude is one of the best predictors for budget success. Be sure you know exactly where your money is going; misunderstanding your budget is a recipe for disaster. Plan purchases carefully, after accounting for bills and expenses. Try to keep in mind the goal. Following a budget equals financial freedom, even if it seems like it is a long way off.


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