If there is one thing that the personal-finance TV shows and the magazine articles agree on, it has to be this – that if you’re serious about managing your finances well, you had better draw up a budget and stick to it as closely as possible. And an admonition to draw a budget is hard to disagree with too. It helps you set financial goals, save, get rid of debt and so on. The problem is that while budgets can be very good if you follow them, the truth is that most people find it very hard to follow budgets because they’re just unpleasant things. Asking a person to follow a budget is like telling a smoker that he just has to try hard to quit. When the message you recommend is very unpleasant, people just don’t follow them.
Still find it hard to believe that a budget can be a bad idea as a way to manage your finances? Let’s take a closer look.
Let’s start with how hard it can be to draw up a budget. Drawing up a budget requires you have to plan far ahead, plan for every expense you will need to make through the week (whether you can predict what they may be or not) and writing them down. Why, people can’t even remember often what they’ve spent that very day when they come back home. Basically, it’s quite impractical to expect your average person to think of every single thing he will spend over the coming month – every birthday party, every date, every gift, every school trip – and write it down and plan for it.
Actually, trying to draw up a budget and then keep to it is a full-time job. It can take hours of work every week to total everything up and to look at how closely you are following your budget. Of course, budgeting programs like Quicken try their best to make things easier for you. But it still is difficult. And the main reason budgets fail is simple – they make you feel like you’re on a diet. How can anyone live like that their whole lives?
Well, is there an alternative when it comes to trying to manage your finances?
How about scrapping the plan that you need to plan ahead, and instead taking advantage of the fact that hindsight is 20/20? You could take a look at how things went over the past month, and check to see if you were anywhere near meeting your financial goals. And then you can make a mental note about what you need to change.
For instance, how about if the first day of the month, you were to tell yourself that you aim to save a certain amount – 10%, for instance. On the last day of the month, you can look back and see how much you’ve managed to save. If you aren’t happy with the figure you’ve arrived at, you can look back over the previous month, and try to see what you could’ve done differently. Over the course of several months, you’ll find that you’ve learned to evolve and shape your habits better.