4 Myths About Budgeting
I have worked as an accountant for over twenty years for non-profits, governmental units, and manufacturing companies. Budgets have been under my management for many years. I’ve even worked on the budget committee at a church. And I have to tell you that people outside of accounting have no idea of what a budget really is.
A budget is a guideline and an expectation of where expenses will fall. We budget so we don’t just spend money at the drop of a hat anywhere. By budgeting, we promise our money in certain sections and divide up income and expenses in a smart way. But people think it is so much more.
Myth: Budgets Cannot Be Flexible
This is one of the biggest misconceptions about budgeting. They think that a budget has to be followed rigidly. While it is a good idea to follow it to the letter, budgets have to be flexible because life is not constant.
Is your electric bill always the same month after month? For some people it is, but overall this expense varies each time it arrives for payment. When you budget, you are using an average. That means that some months you’ll go over and others you’ll be under. That’s okay. Nothing wrong with that because the budget is a guideline and will help you find areas where you can be smarter.
Let’s use the electric example. My family had a budget. We noticed that each month we were spending more than we should have thanks to your budget. We got to looking for any good explanations. Not finding anything, we decided to use fewer lights. I pulled out my hurricane lamps and taped the switches. We found our bill getting lower. The budget helped us see where we were wasting energy and our money.
Budgets are guidelines. They help you stay within a certain path. If you stray out of the path, use the budget to help you get back in. It might be that you created a budget that cannot be met. You need to make a budget that can be met.
The truth is that you will be over the budget sometimes and other times you’ll be under. Don’t just accept it as the way it goes. Use it to help be smarter is how you live life and spend your money. Just don’t think the world is ending because you can’t meet your budget perfectly.
One large company I worked at had its budget, but also had two revised budgets as the year went on. The initial budget was based on information they had at the time several months before the new year began. In reality, life isn’t that easy. Each month can bring changes either good or bad. So three months into the new year, all figures are assessed and a revised budget is created with more accurate information. Three months later, another budget is created. This helped reflect market changes, new customers, and gas prices. The budget had to be flexible or it would become unrealistic. The same should be applied to your own budget.
Myth: A Budget Is Unrealistic
It might seem that your budget is unrealistic. It just might be, but don’t assume it. A realistic budget is one that you can meet with determination and a little challenge.
Start with what your bills really are. If your minimum payment on a credit card is $25, then put that down as your budget for now. After all, you should be paying that much at least. Therefore it should be realistic. Put the bare minimum you have to pay when you create your first budget. That should be manageable or you have issues that a budget cannot fix. I would suggest talking to a financial counselor then.
With each new budget, challenge yourself. Take that bare minimum budget and make it challenging. Increase your credit card payment by five or ten dollars a month. That shouldn’t be hard. It is realistic. You don’t have to put in your budget to pay it off in one month if you don’t have the income to support that. That would be unrealistic. Get real!
One woman had in her budget over $500 a month for food for just her and the same amount for clothes each month. Really? You need to spend that much. Her excuse was that she wanted to be safe in case she had to spend that much. That’s not what you do with a budget. Don’t pad it. If you have to spend $500 in clothes one month because you suddenly have a new job or have to travel, that’s different. That doesn’t mean you spend that much each month. How much do you have to spend? Not what you want to spend.
Myth: I Have to Stay on Budget or Die
A budget is not a noose around your neck. Now that doesn’t mean you ignore it, but life has it own rules. Sometimes you are going to find yourself having to pay more or less for certain things that you didn’t anticipate. That happens. That’s when you adjust and see where you can still come out ahead by cutting a few corners in other areas if you have to.
I was at a business meeting at a church. It was brought to the congregation’s attention that the furnace was dying in the middle of a blistery winter. The man in charge asked what he should do since it wasn’t in the budget. Okay, I don’t know about you, but a furnace in ten below zero weather is not a luxury. It is a necessity. He was told to buy the furnace. Having the money wasn’t the issue. It was the fact that it wasn’t in the budget. They seriously were talking about what to do with no heat. I had to step up and explain to them what a budget was. This was one time going over budget was needed. Adjust next time.
Myth: My Life is Too Complicated for a Budget
Nobody’s life is too complicated for a budget. If you think yours is, then you desperately need a budget.
Keep in mind that a budget is there to guide you and make you think twice before spending. If your goal is to save money for a trip, then you create a budget that has you cutting back in a few areas so you can put more money in savings. With no budget, you’ll keep buying those expensive lattes with no thought as to how much you are taking from your tip fund. With a budget, you limit yourself to only one a week. That has you paying attention to when you purchase one. It’s a guide that keeps you from spending too much and in the wrong places.
Budgets are plans. They are guides to help you reach your goal. Try to stick close to them, but don’t have an aneurysm because you go over. If it was a necessity or something beyond your control, step back and adjust your budget to reflect that. If you need help with a budget, talk to someone with an accounting background or with a financial counselor.