The Budget Battle

We’ve all done it.

We create budgets with full resolve to stick to them.  But the next month, you’ve gone over and have no idea why you have an empty bank account.  Why are budgets so difficult to stick to?

Cotton Candy contributor and author of Moneylicious: A Financial Clue for Generation Y Ornella Grosz unveils those sneaky habits making it difficult to win the budget battle.

No. 1 Deal or no deal.

Recognize whether a sale is a deal for you.  There are times when a sale will save you money.   If you need the item, and the product is on sale, consider the savings a deal.   On the flip side, purchasing items on sale for the sake of a sale could lead you to overextend on your budget.  Let’s say you have $200 as your set budget.  The prospective item you are looking to purchase is 30% off the original amount of $300.  Excitingly, you believe you are saving $90.  On the contrary, you have exceeded your budget by ten dollars.

No. 2 Using plastic cards.

Credit cards should be used for convenience only, not to buy something you cannot afford.  If you use plastic to purchase an item, make sure to pay off all charges at the end of the month.  If not, you might go over budget once you begin to tack on interest and late fees.  Try paying with cash.  It enables you to stick to your budget.

No. 3 Assigning a dollar a different value.

Many of us simply have the tendency to assign different values for money that’s not earned.  For example, you might have the inclination to spend your tax refund differently than your earned income.  You place a different value on your tax refund by splurging on a new HD flat screen TV, while your 9–to-5 income is allocated toward your retirement and other financial goals and expenses.  A hundred dollars should equal hundred dollars no matter how you acquire your money.

No. 4 Burying “losses” in bigger expenses.

Imagine you are looking at your dream car.  The sticker price without the navigation system is $2,000 less. You figure since you are already spending a large amount on the car, the extra expense will not break the bank.  However, if you were told you had to replace your car engine for $2,000, you likely would compare the cost to your everyday expenses, such as food, entertainment, and clothing to assess the value and impact on your finances.  It’s much easier to hide the “loss” of two thousand dollars in a larger expense.

No. 5  An unrealistic budget.

Balance your budget to meet your lifestyle. Do not make a budget that is too high for entertainment costs and low in food costs.  And many err the other way, budgeting for necessities but never including money for recreation.  Fudge with the budget. Buy groceries less often.  Then allocate some of your grocery money toward your entertainment. This way your budget can reflect more of your lifestyle.