Budgeting is, at face value, not a complex concept. The individual or organization forecasts revenue and balances it with expenses to come up with an outcome that is satisfactory to all parties involved. Of course, anyone who has actually put together and implemented a budget knows that things are a bit more complex than that when it comes to the reality of financial life. Despite keen minds and ambitious intentions, budgets can easily get derailed by a number of factors. Here are a few specific thoughts on why budgets fail.
The future is obviously difficult to predict. When people are putting together a budget, they must forecast a number of line items. The word “forecast” is a fancy word for guessing. Granted, there may be historical data and fixed costs to suggest what might be included in a particular budget. In addition, budget line items are sometimes set up with enough control mechanisms to ensure that they will not be exceeded. However, there is always the possibility that people might get numbers wrong. In addition, sometimes people pick numbers that represent more wishful thinking that historical reality.
Other times, budgets fail because of circumstances that may or may not be beyond the control of people. For example, when the economy is strong, organizations may get used to budgeting a certain way. However, if the economy takes an unforeseen downturn, it may cause the budget to be throw off unexpectedly. Again, sometimes this can be anticipated, but other times it is truly unexpected. In addition, certain expenses can appear when they were not originally planned. This can also cause budget havoc as individuals and business must make adjustments.
Finally, there is the human factor of budgets, which can be the most problematic factor of all. Sometimes people just do not put the effort into building a quality budget or following what is written. This may be due to the fact that the budget “cramps” their lifestyle, or it may be that they are simply undisciplined when it comes to money. The reality of today’s society is that individuals as well as organizations often want things right now. Therefore, they are willing to purchase and accumulate debt rather than follow the budget that has been created. Or, there are no real consequences to exceeding certain budget requirements. Despite the best intentions of some people, budgets do fail. As mentioned, sometimes this is not the fault of those who created the budget, but other times they have no one to blame but themselves.