Why a Personal Budget System Doesn't Work

Balancing a personal budget requires constant monitoring of spending.

Balancing a personal budget requires constant monitoring of spending.

A good budget allows you to accurately track expenses, identify unnecessary spending and re-direct this money to savings. Unfortunately, personal budget systems fail more often than they succeed. Understanding the pitfalls of personal budgeting and learning alternative methods of monitoring expenses can help you build savings for your short- and long-term goals.

No Allowance For Fun

Personal budget systems restrict fun, and no one likes to cut out enjoyable activities. An alternative method of organizing monthly expenses and savings is to set up an automatic withdrawal to a savings account for fun activities. Knowing there is money for a dinner out, a weekend away or to attend a favorite sporting event makes it easier to avoid impulsive entertainment purchases.

Cashless Society Encourages Impulse Buying

It is easy to make impulse purchases that aren't in your budget by using a debit or credit card. It's awkward to stand in a store and calculate whether you have enough money in the bank for those gorgeous shoes or that new golf club. Instead, pay cash for everything for one month. According to a December 2010 New York Times article, research shows that handing someone dollar bills is more psychologically difficult than swiping a debit or credit card, and it makes people think twice before impulse buying.

Unexpected Expenses

Unexpected expenses can derail a personal budget system immediately if you must scramble to find money to pay for home repairs, car repairs or medical expenses. Prepare for unexpected costs with an emergency fund. Contribute a small amount each month until you have saved one or two months' living expenses in a savings account. This will help keep finances on track when you are faced with surprise bills.

Budgets Need Constant Self-Control

Constantly monitoring every penny being spent in a household requires a great deal of effort, especially for couples with joint bank accounts. Trying to figure out who spent what where can strain a relationship to the breaking point. Instead of using a difficult personal budget system to grow your savings and reduce expenses, establish savings goals and set up accounts for each with automatic monthly bank withdrawals from your checking account. Pay bills and other expenses from the money left in your checking account. This forces couples to live within their means knowing savings are taken care of and avoids the work required with a complicated personal budget system.


About the Author

A former financial adviser with more than a decade of experience in personal finance and small business banking, Sarita Harbour is a professional writer specializing in personal finance, small business, technology, and content marketing techniques. Her writing appears online at sites such as Yahoo! Homes and Bob Vila. Harbour holds a bachelor's degree in psychology and computer science from the University of Guelph and the Personal Financial Planning designation from the Institute of Canadian Bankers.

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