Inside Money: Why family budgets fail

This isn’t an easy economy. Living paycheck to paycheck and never having enough money to go around is pretty common. The reason is simple: Your budget’s at fault. It’s not because you earn too little. It’s because you spend too much. Here are the top four reasons budgets fail:

1. Your budget is a best-guess.

While a family budget isn’t a complex document, it does have lots of moving parts. Some items are easy to account for, but unless you’ve actually saved receipts for every dollar you’ve spent over the course of several months, there are quite a few costs that would probably surprise you. Budgets are made up of fixed and discretionary expenses. Fixed expenses remain the same each month, such as the mortgage, cable bill and cell phone bill. Discretionary expenses are another matter.

These are the costs you control, such as dining out, clothing, manicures and boardwalk hot dogs and funnel cakes. Each time you spend for a discretionary expense, you’re making a decision that could throw your budget out of whack. I’m betting my next trip to Atlantic City that most of you don’t have a written budget.

And I’d bet my beach pass that most of you haven’t tracked expenses to see where the money is going. Take me up on this challenge: Grab a notebook or create an Excel spreadsheet and track your expenses through the fall. You’ll learn about your spending habits and create an accurate budget.

2. No emergency fund for surprise expenses.

We all have surprise expenses, whether it’s a medical bill or a home repair. Unexpected items can blow the best-planned budget. Money is tight and jobs are loose, which is why an emergency fund is essential. Financial advisers recommend we keep three to six months of expenses (yes, based on a budget) in a safe and liquid account, such as a savings account or money market fund. When your bank account is lean, setting cash aside for emergencies may seem unrealistic.

Try anyway. Use an automatic savings plan that transfers a set amount to a savings account each month. Even $25 a week adds up to $1,300 in a year’s time.

3. Your kids pretend money does grow on trees. You probably do, too.

If you and your spouse have salaried jobs, you know how much money is coming in. You can take steps to control what’s going out. After you track your expenses for a few months, take a look at how you spent your paychecks. See what you couldn’t live without and what items you could have passed on. Do the same with items you’ve purchased for your children.

Make the hard choices and cut back, and teach your children how, too. For example, if your teen  desperately needs those $50 jeans but you’ve budgeted only for $20, encourage your child to earn his or her share.

If you put the kids on a money diet, make sure you’re also on one.

4. You’re not keeping up with the Joneses. You want to be the Joneses.

New Jersey is an interesting model of consumption. I see families and wonder how they afford their lifestyles.

Sure, the breadwinner has a decent job, but the $800,000 home (and corresponding property taxes) and the his-and-hers-Mercedes make me ponder how they can afford it all. The answer: credit. It might appear that your neighbor has the good life. Could be. But it’s likely that he’s buying that good life with plastic and, eventually, it will come to haunt him. While those sexy things might seem attractive, it’s better to minimize debt, save for your “wants” and set a little aside for retirement.

The Joneses may be eating cat food in retirement so they can make their credit card payments, while you, willing to pace your spending, are free of debt in your golden years.