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Why Budgets Just Don't Work…

Almost everyone has been taught that the way to control spending is to write out a budget (which determines a set amount that can be spent based on how much money comes in each paycheck) and then stick to that budget. But most people hate the idea of budgeting because it makes them feel restricted. Budgeting doesn’t account for the fact that most individuals will not be strict enough with their money to limit their spending to ONLY the amount they take home each month. For that reason, budgets are generally doomed to failure even before they are implemented.
There’s a better way to control spending and still be able to manage unexpected expenses and impulse purchases. The best way to control spending is to use a three-pronged approach:
Prong 1: First, plan (or forecast) how you want and need to spend within prescribed categories. These categories are determined based on how you have spent money in the past (not on how you think you may spend in the future).
Prong 2:  Second, track how you actually spend your money within these categories throughout the month.
Prong 3: Third, compare your tracked spending with your original plan to see where spending may have gone over or under in various categories and whether you stayed within your overall income; then adjust your spending priorities so you can balance your income with your spending needs.
Budgets just encourage you to make a basic plan, usually without specific categories or maybe just a few — they don’t include any tracking or comparing so that adjustments can be made based on values and priorities. 
Using the three-pronged approach allows you to “prove your priorities” to yourself as your needs and wants change; it helps you remain in control when unforeseen problems occur; best of all, it allows you to spend while still watching your bank account grow.
This spending approach is much different than traditional “budgeting” methods because it doesn’t force you to focus on what you can’t have. Instead, creating a Spending Plan, tracking your spending according to that plan, and then comparing what’s left in each category at the end of the month with available income gives you the freedom to spend in the areas of your life to which you have given the highest priority. It then helps you track how that spending will affect your daily needs, emotional wants, and long-term financial security. Rather than showing you what you have done after the fact — when it may be too late to do anything about it (as budgeting does) — tracking lets you see how your spending is affecting your financial situation as you spend. 
By their very nature, budgets are static. They fail to account for life  shutterstock_254511226“coming at you” and for the need to be flexible in the way you spend. Planning and tracking allow you to alter your spending as needed and make different choices going forward so you can remain in control, while still giving you the freedom to spend money in areas that you deem important. A budget dictates what ares to cut, but tracking reveals the most meaningful areas for you and your family to spend. Budgets are depressing and difficult to force yourself to do, but planning, tracking, and comparing are uplifting and encouraging when they are done with specific goals and dreams for the future in mind. Budgeting is argumentative, while planning and tracking help a person make a decision in advance of the moment, leaving little room for impulsive behavior or arguments with spouse or self.
shutterstock_254497954Spending according to a plan and then tracking that spending can be both pleasurable and rewarding when you know where and when you need and want to spend. You will be able to predict how much money you will need to retire, how much you will need in case of emergencies, and how much you can spend for fun. It also helps you focus on the positive aspects of your financial life and can help you feel confident about the future.
For help in creating your own personal Spending Plan and to get your free phone tracking APP, call us today: 801-292-1099.

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