Why your budget is not working

You have attempted to do a budget many times including early this year as you were setting resolutions. You find yourself now in the same place you were last year. You still do not have a working budget. You have read this column and other financial literature may times and remembered the many references made to the budget. But you still find this process is simply not working for you. Many people, myself included, can relate to being stuck at this place. To give you some comfort, this weekend I had the pleasure of talking to a group of people who are enrolling for my program and we ended up speaking about this one topic. I just want to share some of the insights that came out from that discussion on Budgeting. As you read this relax and just know you are not alone.

A budget details your income and most importantly how you are spending that income i.e. how you are or plan to be allocating those funds across your various needs. Many of us know that but it is not a secret that we have a mind block to this process because, we simply either don’t do one or we don’t maintain one. Same difference! From what was garnered from the group, the fear of failure i.e. not maintaining or sticking to the budget keeps people from actually doing one. They already inherently believe they will not maintain it so they just don’t do it. Why is that? Many of us view the budget as a restriction rather than a tool. Say Mary budgets for Kes 5,000 on entertainment per month. She immediately feels restricted to Kes 5,000. So that month when she spends Kes 7,000 she feels like she has failed. So she would rather not write it down at all so she doesn’t feel restricted and neither does she feel like she has failed. Even before we go to other reasons this is apparently what stops us. The solution that came out of my session was to stop putting pressure to succeed the first time. Look at the budget as a journey rather than a destination. It is not cast in stone. Mary can look at where she went overboard and decide to not undertake that activity next month or she can re-evaluate her budget and decide Kes 5,000 was never realistic to begin with. Mary is now using her budget as a tool to make decisions.

Many of us establish budgets with costs we know and the rest we actually just guess hence why it cannot work the first time round. In the guessing process we also fail to include some expenses because you cannot remember them at the point of creating your budget. You may remember key expenses that are fairly constant like rent, school fees, groceries, electricity etc. But like Mary, you may not know precisely what you spend on entertainment. You may also neglect to add in the cost of your daily newspaper. Since budgeting is a process, to work towards getting it right you will need to monitor ALL your expenses for a while. Note down every single cent you spend. After three months of this you will be more certain of what you are actually spending and can make decisions accordingly. This process also brings about an awareness or accountability that may have previously been lacking. When you know you have to note something down before you spend it, it becomes clear what is important or not important. The things that are not that important, you will find you don’t want to write them down. This is where you will pin point areas to cut down. The things that are important, you will be happy to remain accountable to them. Your budget is now enabling you to make personal spending choices. If the thought of doing this is scaring you right now you are on the right track. Be scared but do it all the same.

Many people feel they don’t see the ultimate benefit of budgeting. At the end of the day one of the key objectives of managing expenses is so we can save or invest more of our income. The people in the group expected to see money in the bank account after spending. That will never work. If Mary decides to save Kes 10,000 per month it must be treated like rent. Once she is paid, Kes 10,000 moves out of her account into a savings vehicle even before dealing with expenses. This is actually the meaning of pay yourself first. This way the Kes 2,000 she overspent on entertainment is not coming at the expense of her savings and hence her future financial goals. It can come at the expense of something else like buying clothes or making her more economical with grooming. Her budget is enabling her to become disciplined and foster a savings mentality. This way as she earns more she will automatically start saving more as opposed to the more common response of spending more.

The importance of this simple but critical tool cannot be overstated. Management of expenses is a fundamental step in wealth creation. If you can’t manage, account and understand the importance of Kes 100, you can’t do the same for Kes 1 million. Start your budgeting journey today and get in touch with with me should you want to receive a budget template to get you started.

Waceke Nduati

Waceke runs a program on personal financial management. Find her at waceke@centonomy.com|

Twitter @centonomy

Facebook Centonomy