People run afoul of these pitfalls because they don’t budget. They don’t analyze or plan their spending. Nowadays, of course, there are apps to help. Mint.com is a popular app to categorize and track spending. Some banks, like BB&T, offer budgeting programs of their own.
“Pick one credit card or one bank for your spending,” says Rose Price at VLP Financial Advisors, and their programs can help you monitor your spending.
But the problem still is setting the parameters for that spending and sticking to it. Kelly Campbell at Campbell Wealth Management in Alexandria has found that those who spent time in the military are best at it. The longtime success of USPA/IRA, the retirement savings for the military, inculcated a savings discipline, he says.
“They have such a good sense of discipline anyway,” Campbell notes. But this kind of discipline is rare, he adds. “People aren’t disciplined enough to budget. If you are, fine, do it.”
Michael Egan from Egan, Berger & Weiner agrees. “There are those who can budget categories, set limits and stick to them,” he says. “But that’s about 10 percent of my clients.”
For the other 90 percent, the key is to set goals for what’s important. If money is gone before everything is covered, just cut those expenses. This is priority budgeting, one of the classic strategies.
Other classic strategies include 60-40, covering fixed costs with 60 percent of income and discretionary costs with the rest; zero-based, making sure income minus your expenses equals zero; and, simplest of all, envelope budgeting, which entails stuffing cash into separate envelopes for each budget category.
Types of Budgeting
Priority budgeting: Set goals for what’s important. If money is gone before everything is covered, just cut those expenses.
60-40 budgeting: Covering fixed costs with 60 percent of income and discretionary costs with the rest.
Zero-based budgeting: Making sure income minus your expenses equals zero.
Envelope budgeting: Stuffing cash into separate envelopes for each budget category.
