The Number One Budget Breaker and How to Avoid It This Year

Happy New Year! One important step in setting financial goals is establishing or reviewing your budget. After all, how can you tell your money where to go if you don’t know where it’s been?

Notice that as you review your spending on a month by month basis, there is most likely something that negated your efforts to save – a last minute gift, celebratory dinner, travel for the holidays, a music festival, even just a party you threw. These things cost money and not an insignificant amount. It’s not the daily latte or ordering take-out or a splurge at Target that kills most of our budgets. It’s the happy fun things – the things that, I think, make life worth living. It’s these things that we end up spending our “extra” money on instead of putting those funds toward our financial goals.

 It’s not the daily latte or ordering take-out or a splurge at Target that kills most of our budgets.

But I’m not saying you shouldn’t spend that money. What I’m saying is you can actually plan for these expenditures so you can still stick to your savings goals. You knew that most of these expenditures were going to happen way before the money left your account. In fact, I bet you can probably predict most of them for the coming year right now.

This year, instead of trying to work these things into your everyday spending, make them part of your yearly financial plan by mapping them out in advance. It’s easy to do: make a list of the twelve months, then get out your calendar and start writing in the commitments you’ve already made outside your normal routine. When I did this, I realized that almost every month I had some type of travel planned already. I also realized that my dreams of spontaneous camping weekends in Wisconsin may remain dreams unless I start planning them right now. You’re busier than you think!

This month, it’s extending a work trip to LA for an additional weekend – not a huge expense, but it will cost probably $300 after I factor in a rental car, the spa service I’m planning with my friend, dining out and the fact that I won’t be earning my typical fee for teaching a Saturday morning fitness class. This is money that I might otherwise allocate toward my goal of buying a new bike. Another month, it’s a trip to my hometown for a friend’s birthday celebration. That’s at least $100 in gas money.

While I’ve already budgeted for a trip to Italy, seeing it framed by my class reunion and a wedding I’ll miss in Napa that still requires a gift is a financial eye-opener. May is going to be an expensive month. It’s these things, these happy life things, that are your biggest budget busters.

It’s these things, these happy life things, that are your biggest budget busters.

Pay attention to these seemingly financially insignificant events on your calendar and put them into your spending plan now. Did one of your friends get engaged over the holidays? Better start planning now for at least a wedding gift, if not a shower and bachelor or bachelorette party. Lucky you if you’ve also been asked to join the wedding party! It’s an added bonus if it’s a destination wedding – automatic vacation and a $1,000 financial commitment.

Take it to the next level by putting an estimated cost on these events. Add them all up, divide by twelve, and voila! You’ve found a monthly amount you should set aside in your budget. Make it easy to track by opening up a separate account and paying yourself this amount as described in the No-Tracking Budget. This process also helps you gauge whether your savings goals are realistic.

By doing this advance planning, you should still be able to achieve whatever financial goals you are working toward such as paying off debt or building up your savings – those less “fun” but still essential goals. Knowing in advance that this money will be spent anyway actually does motivate me to cut back on my wine or clothing budget in a way that just trying to “make it all work” doesn’t. Try it and let me know how it works for you.

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