Behavioral Finance Financial Planning Savings

Budget Myths Busted

Budget Myths Busted


One late night in winter 2010, I was heading home from visiting a friend at Bloomsburg University, when snow began to fall. My commute took me over a series of Pennsylvania mountains with some very steep climbs. It was upon descent from one of these climbs that slippery roads decided to take control of my front-wheel drive sedan. Panic took complete control as my car began to careen into the left lane.

What does that have to do with budgeting? Is it that I should have budgeted in advance for a car with all-wheel drive? (Would have helped.) The fact is, like driving, there can be a lot of unexpected outside factors that can send us off of our chosen path. And very much like those scenarios in which we’re sent off course, what’s most important about budgeting isn’t controlling the unexpected, but controlling how we respond.

The Myths

Myth: I can’t keep a budget, because I don’t know what my income is. This is a common misconception, particularly for self-employed individuals, or those whose compensation is performance-based. The truth is that budgeting is not about controlling what comes in, it is about controlling what goes out. It is important to draw a line between cash flow planning and expense management. Once you do, you may find you have more control than you originally thought.

Myth: I made a budget, but I couldn’t stick with it because of (insert unexpected expense.) If you have made a budget in the past, congratulations – if you had trouble sticking with it, that’s okay. It’s important to understand that budgeting is a dynamic process. Unexpected expenses will always pop up. You can work these expenses into your budget, but you have to be prepared to give you dollars a different job. It’s not all or nothing. Reducing your dining out budget may be required. Budgeting can also help you be prepared by seeing the power of building in monthly savings to prepare for just such an emergency.

Myth: Budgeting means giving up control.In the words of Dwight Schrute: False. Budgeting means taking control. Now, repeat that 5 times. “But wait,” you say, “you just said that budgeting isn’t about taking control! You’re a liar.” First of all, ouch. Second of all, think of it this way: what is it in life that we have complete and utter control of? The truth is, very little. For example, if you’re a golfer, you may know that getting out and swinging your clubs every day will help you. But that won’t have any impact on a course that has bad turf-grass management. However, it will impact your overall score less if you decided you were going to focus on improving your swing, and not worry about outside circumstances. Budgeting is very much the same way: the more disciplined you are with what you can control, the less of an impact outside circumstances will have on your success.

The Bottom Line

The night that I lost control of my car, I could have blamed the weather, or made an excuse about the lack of the right vehicle for the conditions. Fortunately, I was taught – and had practiced – tapping the breaks and counter-steering. These two techniques kept my car (and me) in perfect condition, and allowed for a safe return home. The alternative could have been much worse.

Discipline and preparation could help keep you on course next time, too.

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