I thought we should today discuss budget challenges and how to solve them. It is an interesting discussion that I believe will help you in managing your personal finances well.
A budget is perhaps the most important tool in the hands of anyone trying to manage his income. I cannot think of any tool that matches the budget in helping people find their way in tough economic conditions.
As I am writing this the world is facing one of its biggest challenges ever, i.e. the COVID-19 epidemic. It is an epidemic that has brought many western economies to a standstill.
Millions have now lost their jobs and are desperately trying to survive. These problems have been made worse by the fact that most people hardly have any savings worth mentioning.
It is in such times that the importance of proper budgeting comes to the fore as they struggle their way through. I should also point out that the reason most of us have no savings is due to the fact that most of us don’t do any budgeting.
And if you don’t do any budgeting it is mighty difficult to be able to save any money especially for those of us who don’t get paid a lot. It is a different issue if one is getting too much money as they can easily save without a sweat/
Unfortunately, most of us don’t get much in terms of salaries and we, therefore, have to find a way to control our day to day expenses.
In preparing budgets there some things that can stand in the way of preparing and implementing a good budget that you need to take into account.
Related Posts: How To Drastically Cut Household Expenses and Family Budget
Biggest Budget Challenges and How To Solve Them
It is important for any budget preparer to be aware of some of the biggest budget challenges and how to solve them. Below are some of the budgeting challenges and solutions to those problems.
One of the phrases I learned when I was studying information systems in college is, “garbage in, garbage out”. The quality of the output is dependent on the source data.
If the source data is flawed then no matter what you do the end product will be flawed. And as you prepare the budget this is one of the issues you need to take into account.
This is especially true when dealing with budgets for large organizations and less so when dealing with family finances.
This is because of the scale and ways of collecting it in a large organization. One also has to take into account the fact that in big organizations most of the input data is difficult to estimate.
The family budget is not that difficult as it is a bit easier to estimate most of the income and expenses. It is very easy for example to estimate your income as it will rarely change for most people.
In fact, the average American worker’s income has more or less remained stagnant in the past twenty years according to PewResearch
Even though a family budget is fairly easy, one still needs to make sure that the source data is correct. To do that I would suggest the following steps.
Receipts and Bills
Firstly before you start budgeting make sure that you get all the most recent bills and receipts. This will make it easy for you to come up with the correct estimates.
If you just trust your memory you could end up with flawed data and as a consequence a flawed budget.
Another source of good information is your emails. In your emails, you could discover some expenses that might be missing in your receipts. For instance, you can uncover some subscription emails.
Bank statements are one of the most important documents where you can get some nice data for your budget. You can use to confirm some of the information you already have but also find payments for which you were not able to get supporting documents.
Sticking to Your Budget
Another challenge that most people and organizations face is sticking to it. It is one thing to have a budget but it is quite another to follow it to the letter.
Most people are willing to spend time to prepare a budget but fail when it comes to implementation. This renders the whole process useless.
As a result of not following your budget, you will fail to meet your goals. For example, if your goal was to raise a house purchase deposit and your finances are tight, then not sticking to your budget could mean no deposit being available.
And most people who don’t stick to their budgets also end up overspending. This is because they end up incurring unplanned expenses.
It is therefore important that we all remain vigilant and disciplined when using our money. An undisciplined person cannot achieve much in this world.
One of the ways of avoiding these unplanned expenses is to make sure that you do a good job in the preparation of the budget. In this way, you will be able to make sure that you have included everything you need in your budget.
For those who somehow find themselves spending their resources on things that they really don’t need it is time to learn about frugal living.
Below is a post I wrote on frugal living.
Another problem that I face as an Accountant at work during the budgeting process is finding the time to allocate to this. And I know that the same challenge faces those preparing their family budgets too.
We somehow think that we have other “important things” like watching soccer, going to the pub, etc rather than preparing a budget. This boils down to laziness and lack of discipline which is eventually costly for a family or organization.
An average family budget should not take a long time to prepare. You should be able to finalize it in one night. This is especially true if this is not your first time as you will have access to data from previous budgets.
For those that fill they do not have time for preparation of budgets maybe it is time to get a budgeting app to simplify this process. I am saying this even though I believe that you really don’t need an app to do this.
Another budgeting challenges that can easily derail budgets are emergencies. They can range from funerals, sicknesses, etc where you are forced to spend outside your budget.
By their very nature emergencies are had to anticipate but they are a few things that you can do to prepare for them.
Firstly, you can set aside money for emergencies in your budget every month.
You can even go further by creating a savings account for emergencies where that money will be deposited into every month.
Secondly, you can take out an insurance policy to cover emergencies like funeral, sickness, fire, etc. If you do your research well this could save you a lot of money in emergencies.