10 Budgeting Mistakes You May Be Making
One of the reasons that many people give up on budgeting is that they can’t seem to make their budget work. Often the difficulties come from making one of these 10 common budgeting mistakes. It helps to understand the mistakes and misconceptions you may have to help you get control of your money. Learn if you are making any of these mistakes and how you can fix them.
Budgeting Mistake: Guessing at Monthly Costs
When you create your first budget, you may not know how much to assign the various categories in your budget. It helps to look over your past three months worth of spending and base the amount for each category on the average that you spent. Over the next few months, you can cut back on spending gradually. One common example is to decide that you will spend $200.00 a month on groceries for you when the last few months you have averaged $500.00. Cutting back $300.00 in a month on food is likely setting yourself up for failure.
Budgeting Mistake: Assigning Expenses by Paycheck
If you are paid weekly or every other week, you may be assigning your expenses by paycheck. This means that the week that you pay your mortgage or rent, you may be really tight, and it can be even more difficult if most of your bills are due at the same time. The best way around this is to divide each paycheck up and set aside money from each to cover the larger expenses. Another alternative is to save up a month of income, and use that for your budget, while you are saving what you are earning this month to pay for next month’s bills. This process makes budgeting a lot easier and helps to prevent the times where you do not have money for groceries.
Budgeting Mistake: Not Tracking Your Spending
If you are not tracking your spending by category, then your budget is not doing you any good. If you do not know what you have spent, you cannot know when you have reached your limit. The key is to find the budgeting method that will work well for you, whether it is software or the envelope method. Once you track your spending, you can really start following your budget.
Budgeting Mistake: Leaving Out Items
One common mistake is that people forget to put things in their budget. You may leave out things like gifts, haircuts or annual bills. If you have not planned or budgeted for the expenses, it can really hurt you when it is time to pay for it. You can budget for annual expenses by dividing the amount that you pay by twelve and setting aside that money each month. You also need to make sure you haven’t forgotten to add these items that people most commonly forget. After a few months of budgeting, you should be able to identify the expenses you are missing.
Budgeting Mistake: Not Working as a Team
If you are married, one of the biggest issues may be working together on your budget. You both need to be committed and discussing where you are financially on a regular basis. This will prevent you from both spending too much money or blowing through a category spending in one day. If you are married, it is essential that you work together on your finances.
Budgeting Mistake: No Emergency Fund
An emergency fund is what saves your budget when you have to pay for a car repair or you need to cover a medical emergency. If you set aside money in your emergency fund, then you will be able to handle the unexpected when the time comes. Your emergency fund makes it easier to deal with the stressful financial situations in your life because you know you have it covered.
Budgeting Mistake: No Fun Money
When you restrict yourself of all fun or entertainment spending, you are more likely to blow your budget. Splurges are okay, but you need to plan for them, put them in your budget each month and stick to the amount that you are going to spend. Otherwise, you may crack and end up spending more than you would have if you hadn’t set up the restrictions in the first place.
Budgeting Mistake: Classifying Wants as Needs
Another mistake that people make is by classifying their wants as needs. When something is classified, as a need, you do not consider cutting back on it as much at first. You can also lump needs and wants into the same category, which can make it harder. For example, food is considered a need, eating out a want. Your basic necessities are needs, food, shelter, and power. Transportation within reason can be a need depending on where you live. Learn more about five common wants that people mistake for necessities.
Budgeting Mistake: Assuming Your Monthly Bills Are Set
Many people look at their monthly bills as a set. For example, your cable and cell phone bill may be the same amount each month. As a result, when looking at your budget, you may not be considering ways that you can decrease the amount that you spend on them. It pays to shop around for everything from insurance to your television provider to your gym membership. You should take time each year to see if you can get a better deal.
Budgeting Mistake: Not Having One
The biggest budgeting mistake is not having one. If you don’t have a budget, you are likely living in between financial crises. You aren’t saving for the future and just floating along, while you may be able to get by, you are not going to move forward. Take the time to set up your budget today.