Three budget traps to avoid
I have been working with personal budgets for 47 years when I was 18 and decided to go to university in London, England. Before I left Jamaica, where I was born, my mom and I sat down and developed a detailed budget for the first year. After analyzing my needs for food, clothing, shelter, limited entertainment, books, transportation, we decided to pay £ 30 per month.
My mother taught bookkeeping, accounting, and other administrative courses to secretaries at a business university. I watched it for years and knew that when you created a budget, you continually adapted your lifestyle to live within it. Constantly trying to complain about wanting more money is the victim path that she rejected, which impressed me. Consequently, I made a commitment to my mother to live within my monthly budget. In four years in college, although it was challenging, I did it.
In those days, I learned a lot about budgets. I learned a general lesson and knew that to achieve it I needed to avoid three major budget traps.
The simple but profound lesson I learned early was that there is a limit of money available each month, and I must adhere to that limit. Obvious, but often ignored by people. Thirty pounds, meant that was all he could spend in a month, unless he spent less in the previous months. To date, I have never transferred a balance from my credit card to the next month and therefore have never paid interest on my credit card.
To stay within my budget, I understood that there were three potentially dangerous pitfalls that I needed to avoid:
- Money in the bank trap
- Just cheat
- I know what happened cheat
Money in the bank trap
When working on a budget, you regularly have to look at two different points of view. First, continually compare what you have done with what you planned to do. This helps you identify and keep your eyes on the money drivers. Second, compare the actual cost to the comparable budgeted cost. If you were planning to buy two DVDs for $ 30 each, and you bought one for $ 45, using my method, you know you have a potential problem. You may overspend your budget. I needed two DVDs for $ 30 each. Now, you can buy a second DVD, only if it costs $ 15 or less.
I learned this lesson early when I bought two Otis Redding record albums. He had budgeted six pounds for three albums and spent six pounds for two. However, because I had not purchased other budgeted items, my bank account looked healthy; I was around $ 15. Instead of looking at my individual budget for money drivers, I bought another record album for three pounds, only to find out later that the money for subway tickets (subway tickets) and other budgeted expenses they were in the bank account, waiting to be spent. I adjusted my lifestyle: I traveled less, ate less, to stay within my budget that month.
The bottom line from this is to always look at the money drivers for each budget item, never look at the money in the bank to decide how much to spend. In my examples, the quantity of DVDs and disc albums were the drivers of the money.
Only Trap
I think one of the most profound quotes that affects how we spend is this Benjamin Franklin quote: “Beware of small expenses. A small leak will sink a great ship.” How often have we decided to buy an item because it only costs one, two, five, ten dollars? We forget that these amounts add up. My second lesson was never to spend when I decided it was just a small amount. I learned from this that I was spending not because I needed the item, or even wanted it, but because it was a small and insignificant amount. This was a simple but profound lesson to keep me on track.
I know what I spend cheat
This is the hardest thing to convince people. We are sure we know how much we spend monthly and on what. I quickly learned that I didn’t know, and my experience suggests that you don’t know either. However, you think so. The first time I logged every item I was spending and my motivation to spend, I was amazed at the size of the leak! This ties into the above trap, especially when we spend loose change.
I decided early that I needed to keep track of my expenses regularly, because small leaks would sink my ship!
Today, I use computer software to help me track my expenses. Also, I regularly take stock of where I am and compare it to where I should be, and adjust my behavior as necessary. Is this difficult and time consuming? On the contrary, when you know where your funds are going, you have peace, confidence, no financial stress, and spend less time figuring out where you are. Try it; you will be pleasantly surprised!
I encourage you to avoid the three budget traps as a prelude to taking control of your personal finances.
Copyright © 2012, Michel A. Bell