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Orange County Credit Union provides a broad range of banking products and services like checking, savings, loans, and investments for every season of life. Through our blog, our aim is to equip readers with helpful advice that will enable them to reach financial goals.

5 Reasons Your Budget May Not Be Working

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5 Reasons Your Budget May Not Be Working

Sandra Diaz

Happy New Year! For many of us, it’s that time of year when we think about (possibly even type up a list in our phones) of what we want to accomplish in 2017. Maybe this year, you’ve decided that you want to keep better track of your money. To help you identify how you’re spending your money and how you want to spend it in the future, you’ll need to create a budget. Before you get started, it’s important to understand how to avoid the pitfalls of the process.

In the spirit of New Year’s, let’s count down the top five reasons why budgets fail.

5. Not Tracking Honestly. The information you use to create your budget has to be accurate. You cannot lower fixed payments like a car payment or rent. You need to use your net income – the amount you actually take home after taxes, insurance, 401k contributions, etc. Don’t forget about annual expenses like property taxes, auto registration fees, and holiday gifts. Most importantly, at the end of the month quickly review how you did against your budget and adjust accordingly.

4. No Wiggle Room for Unplanned Events. You can’t plan for every expense - unplanned “good” and “bad” events happen. If you don’t have a rainy-day fund, you probably need to allocate some of your money to unplanned expenses. These situations can quickly destroy your budget if you’re not prepared.

3. Too RestrictiveA super-strict budget (and even diet) can make you feel like your depriving yourself. And, many people come to resent their budget and abandon it. Make a budget that you can stick to. It’s great to want to reduce your spending to meet your savings goals, but try cutting back in one or two areas before revamping your life. Make sure you put some money in the “fun” category too!

2. Your Spouse or Partner Isn’t On-board. Your budget isn’t going to work if your better half doesn’t agree on how to spend the money. Money is an extremely delicate topic for most couples. Don’t use a budget to penalize your spouse for spending. A budget shouldn’t be restrictive – each person needs to have some money to buy or do things they want to do. Accept that your spouse might really dislike budgeting, so try to make it painless for him/her. Maybe you do all the number crunching and give him/her the highlights.

1. Too Complicated. Trying to track every penny can be exhausting and time-consuming. So unless you’re excited about spending your free time reviewing the numbers, keep your budget simple. Focus on the money that’s leftover after you pay the monthly expenses. (This doesn’t mean that you shouldn’t invest the time to refinance a home or car loan if it can save you money.) Then, pick a method for creating a budget that works for you. Use a spreadsheet or just pen and paper or withdraw the cash that you’ll need for the week. You can set up multiple checking and/or savings accounts for the different categories that you’re budgeting for. Then, move the money between the accounts. It’s the modern-day envelope system.