Sticking to a Budget

by Jeffery A. Keill CFP, CIM,FMA,FCSI, Portfolio Manager and Senior Wealth Advisor Keill & Associates- Advisory Team

The simply complex process of the family budget is only second to weight loss planning as the resolution of choice soon after the eggnog and ivy are put away. Just like deciding on a new diet or joining a local gym on January 2nd, a budget is often approached in a way that is frequently doomed to fail.

What is a Budget?

A budget is a pre-meditated assault on future cash flow. We look to the future and predict our upcoming cash flows and how we will spend them. It is an attempt to harness our limited and finite income and get it directed efficiently in directions that will achieve our financial goals. Doing a budget is something we do almost everyday, albeit usually on the fly and in shorter time frames. For example, when we get a gift card for Christmas, we might have allocated a certain portion to a few items or the whole lot to one specific item. Another example would have us look at our upcoming paycheck and decide in advance just how much is available for rent, food, car, to determine how much we will have left for other luxuries. Of course, a family budget can be looked at over a longer period of time, say a year or several years, and be used to guide spending and savings.

So Why Does a Budget Fail?

Over the years I have concluded there are several good reasons why a budget will fail and think that if these areas are addressed the chance of success rises significantly. By fail I simply mean that people capitulate, throw in the towel, and give up. Here are what I believe to be the top 5 reasons:

1.Trying To Change Spending Habits Unrealistically

Chances are if you ever owned a treadmill or been on the Atkins diet, you will understand this easily. It takes a very special person to completely change habits in mere minutes or days. It takes time to build up habits, good or bad. Too often people will make a budget and try to alter their lifestyles with it, much like buying that treadmill. A budget can alter your lifestyle but it should adjust your spending slowly and systematically.

2. Too Detailed and Lacks “Elasticity”

This one is simply the complex part. When we sit down and start to plan out our spending, we tend to frequently take the planning to extreme. For example, if we say that we spend only $100 on gas and we end up spending $120 it can lead to discouragement and ultimately quitting altogether. Another common example is when something unexpected occurs. We did not budget, say, for the car to have an accident, the furnace to conk out, or the roof to leak. The budget not only has to be generous in the amounts (pennies, nickels and dimes are not allowed on a Budget!), it must also have the flexibility to stretch and bend when needed in short periods.

3. Lack Significant Partner’s Buy -in.

If you are married, living common-law, or just share significant economies with a roomie, they need to be involved in the budget planning and execution. Without their input and buy-in to the pre-meditated assault, it will fail as they are not even aware of the goals.

4. No Measure of Success

As emotional beings we like to see or feel that what we are doing is paying off. If a diet did not have a measure of weight loss, many people would fall off the band wagon in seconds. As a matter of fact, after the initial weight loss which tends to be easier is over, people get discouraged when the results are not happening as quickly. For a budget to really have long term staying power, the budget should have a solid and measurable sign of success. This is generally viewed as a decrease in debts or increase in savings.

5. Budgets Not Tied To Financial Goals

To be successful over a long period of time, the process of budgeting should always be marked and tied to certain financial goals. These documented goals should be listed in three basic categories: Short term, Medium Term and Long Term. What each of these categories mean and what goals are within them will determine only by the individual themselves and their particular situation. When your family Budget is directed towards your goals, their will be a natural tendency to a) see the signs of success along the way, b) have buy-in from partners, c) keep the plan simple, and d) slowly allow financial change to occur.

Conclusion:

A family budget is one of the simplest tools you can use to harness your future earnings to bring you closer to your financial goals. Great outcomes result from strongly formed plans and execution. This is what a budget can do for you. To successfully utilize the power a Family Budget has, be aware of the common problems and plan accordingly.

We invite you to contact our office to learn more about how Keill & Associates can help you develop and execute on your own personalized Family Budget to meet your Family’s dreams.

Important: This document is a simple overview of budgeting and financial planning strategies to help individuals and families to reach their financial goals. It is not intended to, nor should be, construed as individual advice. If you would like more information about topis covered in this Brief discussion paper, please contact our office. It is important that individuals consult a tax and legal professional before deciding on implementation of any personalized financial planning strategy.

Disclaimer and Notice to Reader: This Discussion Paper should not be construed as legal or tax advice but rather only as a general statement and explanation of the topic matter. Professional tax and legal advice should be obtained for the readers own personal situation. For more information on this topic or how it applies to your family, please contact our Wealth Advisory team.

Last Edit Feb 4, 2025