10 Biggest Mistakes Made When Budgeting Money and How to Fix Them
Everyone should have a budget, but this is especially important if you’ dependent your end of the month salary. Getting a budget in place is a good start. However, if you’re not careful, you could end up ruining your budget soon after you set it. Here are 10 things you should not do when developing a budget.
- Not Keeping Track of your spending: Before you set up your budget, you should track how much you spend for at least 30 days. That means everything from your monthly credit card bill to your morning cup of coffee. No purchase is too small to include in your budget. There are plenty of apps and online tools that can make the process easier.
- Making your Budget too Restrictive: It is important you set up a budget that is realistic and manageable. Keep in mind your expenses will likely change each month, so you’ll need to leave some room for unexpected costs. For example, you might need to make an unforeseen trip to a doctor’s office or purchase supplies for your child’s school needs. Also, leave room for a few wants in addition to your needs. Depriving yourself will only make you desire to spend more.
- Forgetting to include savings: You should include savings as part of your monthly budget. This will help you get a realistic view of your entire financial picture. Don’t treat emergency savings as an afterthought. That emergency savings fund can be a real lifesaver when you need it most. If you don’t think you have what it takes to diligently sock money away each pay period, arrange to have a certain amount of your check (preferably 10%) automatically transferred to your savings account.
- Impulse spending: Spending on a whim will wreck your budget in no time. One way to stop yourself from making impulse buys is to unsubscribe from email lists for stores where you tend to spend a lot. This will help reduce the urge to splurge whenever you get a notice about a sale at your favorite clothing store or receive the latest coupon code. These emails make it very tempting to go to the website and make a purchase. Even if you just “browse” online, you’re setting yourself up to give in to temptation. So do yourself a favor, and click the “unsubscribe” button.
- Forgetting small purchases: Include additional room in your budget for smaller purchases you make on a regular basis. It’s easy to go over your budget when you forget low-cost items and infrequent purchases, such as a new toy for your pet or an occasional manicure. Leave room in your budget for the little things that don’t seem to hurt your wallet too much at that moment. These little things add up, so it’s important to have financial space to cover those expenses.
- Misaligned Priorities: Do you have big financial goals you want to reach? Perhaps you want to buy a home in the next five years, or you desire to pay down your student loan debt. If you want your budget to work, your priorities must be aligned properly. Setting aside more money for trendy clothing than for emergency savings, for example, is an indication your priorities are not aligned properly. Think about the financial goals you want to achieve, and make sure your budget reflects that.
- Having too many financial goals: It’s great to have a list of financial goals. This helps you stay focused and could push you toward your goal more quickly. However, it might become overwhelming if you are attempting to reach too many financial goals at once. Make sure to tackle only the most important goals first, and then work your way from there. Trying to budget for too many financial goals at the same time will put too much strain on your budget and lead to financial stress.
- Not making adjustments: A big part of budgeting that’s easy to forget is reviewing your budget to see whether it still makes sense. Taking a set-it-and-forget-it approach to budgeting can cost you big bucks in the long run. You can save yourself tons of cash by going through your budget and checking to see whether there are cheaper alternatives to the services and items on your list. Take time to review expenses, such as your cable, phone, and utility bills.
- Guessing how much you spend: You might guess how many calories you consumed during a holiday dinner or how much weight you lost after dieting, but this isn’t the best way to approach the financial areas of your life. When it comes to budgeting, guesstimates are just wrong. Your budget won’t be effective if you don’t have real numbers. If you decide to rely on a guess, you could trick yourself into believing you spend less than you do. You can avoid this mistake by tracking your daily spending for at least one month.
- Ignoring your Budget: That new budget won’t do you any good if you don’t use it. Once you have decided on a plan for your money and each Naira has a home, it’s up to you to review your budget and follow it. Sure, it might make you feel good to know you have a budget, but feeling good about your budget doesn’t translate into healthy finances. You’ll see results when you start living by your budget.