Home
>
Personal Finance
>
Budgeting -- The Critical Flaw That Causes Most Budgets to Fail

taxi from O'Hare Munster limo Chicago New Lenox Cadillac Escalade SUV rentals Melrose Park Cadillac Deville rentals Streamwood Barrington Hills town car ride to ohare .. Drug testing

Budgeting -- The Critical Flaw That Causes Most Budgets to Fail

Budgeting. It's a word we're all familiar with. Everyone knows what a budget is, right? Yet how many of us actually make and stick to a solid monthly budget? The truth is that most of us start out with the best of intentions, but an unexpected expense comes up and busts our budget. Then we give up and go back to juggling our finances and worrying about having too much month left at the end of the money. However, if you are striving to create a budget for the purpose of systematically paying off your debts, or to start a savings and investment program, then it's critical to develop a workable and realistic budget.

So what's the problem? Why do most of us fail at the simple task of creating a budget so we can live within our means? The simple truth is that most budgets don't work because they fail to account for irregular or variable expenses. Everyone knows how much their rent or mortgage payment is. It's the same amount month after month. If your rent is $1,000 per month, that's a "no-brainer." The same is true of many other fixed expenses, such as auto loan payments, cable TV subscriptions, insurance premiums, and so on. It's easy to budget for these expenses because the amounts don't change from one month to the next.

Besides expenses that are the exact same figure each month, there are numerous types of expenses that vary a little from one month to the next, yet we still have a pretty good idea what we spend each month. A good example is our grocery bill. Most of us have a fairly clear picture of how much we spend each week at the supermarket. So we can insert a realistic figure into our budget-in-progress and not be too far off the mark. Sure, the amounts may go up or down slightly each month, but we usually know the range we're dealing with. Other examples of this category include telephone bills, utility bills, and gasoline (although this one certainly seems to be going nowhere but up these days!).

The real culprit in busted budgets, however, is the variable or irregular expense. How much will you spend on car repairs over the next 12 months? What about medical bills? Home maintenance costs? It seems that bills for these types of expenses hit us out of left field, and there goes our budget. Before long, we're using food money to cover a new set of tires for our car, and the whole budget comes crashing down.

So what's the solution? There is no perfect answer to this problem. But we can come to a close approximation by using the simple technique of monthly averaging. Start by gathering 12 months' worth of checkbook registers, bank statements, and credit card statements. Write down (or enter into a spreadsheet) how much you spent each and every time your money went toward something that was not a fixed expense. Group these expenditures into categories, such as auto, home maintenance, clothes, etc. Don't try to break it down too far. What you want is a handful of useful categories. Then keep listing each of these expenses under their relevant categories for the full 12-month period.

When you are done with this exercise, you should have an excellent idea of your total annual expenditure for these variable expenses. For example, if you add up all the automobile repair or maintenance expenses for the year, and the figure comes to $1,200, then divide by 12 to get the result of $100 per month average. That's how much you need to allow in your monthly budget in order to build up enough reserves to handle an auto repair when it comes up. Again, this method isn't perfect, because an expense may come up that exceeds your estimated outlay, but at least it takes into account a closer approximation to reality than simply guessing, or worse, ignoring auto maintenance in your budgeting.

The trick here is to set up a separate savings account in which to set aside these "extra" funds. Let's say the "extra" $100 goes into the savings account for six months, and then you get hit with an auto repair for $400. You pull the money from your $600 savings that was purposely built up for this type of expense. This way, you're automatically setting aside amounts intended to cover each type of irregular expense that you encountered over the previous year.

Most people are shocked when they perform this 12-month analysis of irregular expenses, and it immediately becomes clear why their budget is always breaking down. This technique leads to the discipline necessary to recognize that "extra" money is seldom really extra. If we think we have our bills covered, and there is some cash burning a hole in our pocket, our tendency is to spend it on something fun. But if we know that there really is no cash left over, because we haven't yet set aside the extra $100 needed to keep our car on the road, then we'll be less inclined to spend it on pizza, beer, and movies.

Budgeting can be successfully accomplished by this technique of monthly averaging, especially if we consistently apply it year after year. As we move forward, our understanding of our true expenses becomes clearer and clearer, and we are no longer surprised by the occasional unexpected expense. The best way to implement this approach is to set up a regular savings program, where the amount you're setting aside to cover irregular expenses gets automatically deducted from your paycheck and forwarded to your savings account. If the money is deducted from your paycheck before you even see it, then you will be less tempted to skip this critical part of the budgeting process, and you will greatly increase the chances of making a budget work over the long term.

Charles J. Phelan has been helping consumers become debt-free without bankruptcy since 1997. A former senior executive with one of the nation's largest debt settlement firms, he is the author of the Debt Elimination Success Seminar?, a five-hour audio-CD course that teaches consumers how to choose between debt program options based on their financial situation. The course focuses on comprehensive instruction in do-it-yourself debt negotiation & settlement designed to save $1,000s. Personal coaching and follow-up support is included. Achieves the same results as professional firms for a tiny fraction of the cost.

http://www.zipdebt.com

limousine chicago service

In The News:

If you're not lucky enough to live in the path of the May 20 "ring of fire" solar eclipse, you can still watch the spectacular event online.

If you plan it right, you could rent out your home on the Internet -- and use the money to take a free vacation of your own. These three websites will help you roll out the welcome mat.

Facebook founder and CEO Mark Zuckerberg updated his status to "married" on Saturday.

A new app launched this weekend that will scan the faces of patrons in 25 bars across the city to determine their ages and genders. Would-be customers can then check their smartphones for real-time updates on the crowd size, average age and male-to-female mix to decide whether the scene is to their liking.

An oil company exploration crew's chance discovery of a 200-year-old shipwreck in a little-charted stretch of the Gulf of Mexico is yielding a trove of new information to scientists who say it's one of the most well-preserved old wrecks ever found in the Gulf.

They say patience is a virtue, but like temperance and chastity, it’s not much fun. Unfortunately, if you want to reach a state of true techstasy, you may need to repress your desire to buy a new gadget today and wait for the next version to come out.

Taxes, dental exams, cellphone contracts — things you hate but can't avoid. Actually, you can skip the last one. With prices on smartphones dropping and plenty of used smartphones for sale, BYOD — bring your own device — is now an option.

A turtle the size of a small car once roamed what is now South America 60 million years ago, suggests its fossilized remains.

A new private supply ship for the International Space Station remained stuck on the ground Saturday after rocket engine trouble led to a last-second abort of the historic flight.

A private spacecraft stands ready to launch on a historic first visit to the International Space Station early Saturday morning.

A new generation of super rich, super young tech entrepreneurs is upon us. And while some are barely old enough to rent a car, most could -- if they really wanted to -- buy a small island nation instead.

The small town of Monmouth in Wales (population: 8,807, according to Wikipedia) will become the world’s first “Wikipedia town” on Saturday, May, 19, Monmouth county officials said on Thursday. Every person, place, and thing of interest in the town can now be scanned by a smartphone and looked up on Monmouthpedia.

The 16th Annual Webby Award winners have been released, honoring websites, interactive advertising, online film & video, as well as apps.

Summer's almost here and that means kids will have a lot of time on their hands to surf the Internet. So you may be concerned about what they'll be looking at online. Fortunately most web browsers like Safari, Chrome, Firefox and Internet Explorer have easy to use privacy settings.

Apple was sued in March by a New York man who alleges that Apple’s Siri commercials are misleading and deceptive. Apple’s recommendation to Fazio: buy a different phone.

A new NASA survey has pinned down the number of asteroids that could pose a collision threat to Earth in what scientists say is the best estimate yet of the potentially dangerous space rocks.

Tech geeks across the Facebook empire celebrated the company’s IPO and their newfound millions by slugging back energy drinks at all-night code-writing parties.

Just two weeks after the huge "supermoon" wowed skywatchers around the world, the heavens will offer up another observing treat — a solar eclipse on May 20 that should be visible from much of western North America.

NASA has given SpaceX $381 million to develop a private rocket to replace the space shuttle -- and that’s just the tip of the money iceberg. The space agency plans multiple future grants ranging up to half a billion in the next year and a half. Is the $4.9 billion program worth it?

More than 900 million people worldwide check their Facebook accounts at least once a month, but millions more are Facebook holdouts.

Budgeting -- The Critical Flaw That Causes Most Budgets to Fail

Personal Finance Personal Finance