It is something that so many of us do, but most of us don’t stick with it. No, I’m not talking about vowing to lose ten pounds as a New Years’ resolution, although that might fit. I’m talking about budgeting. Many people have no trouble making a budget, and most of us have made many budgets over the years for our finances. However, most of us do have trouble sticking to the budget. The fact is that most of us approaching budgeting like we approach dieting. We have lofty and unreasonable expectations, and we inevitably set goals for ourselves that do nothing more than set us up for failure.
How can you make a budget that may actually help you to stop over-spending and perhaps even save extra money on a regular basis? There are a few budgeting mistakes that people make. By identifying these mistakes and avoiding them in your own budget, you can set the stage for budgeting success. Here are those mistakes that you want to avoid.
1. Failing to Account for Everything
Maybe it’s because you want your budget to look a little better on paper than it really is, or maybe it’s because you can’t recall all of your expenses when you sit down to work on your budget. Whatever the reason, many people who do prepare a personal budget fail to account for all of their expenses. If you want your budget to really work for you, it needs to be complete. Consider reviewing your bank account expenditures for the last few minutes, and use this as research when developing your budget.
2. Being Unrealistic About Spending Habits
If you are like most people who sit down to prepare a personal budget, you may allocate a certain amount of money to fill up your gas tank, to buy groceries and even to have a little fun on the weekend. These may seem like smaller areas of your budget, but they inevitably are one part of budgeting that can blow your whole budget out of the water. If you are budgeting $300 per month at the grocery store, are you really only spending $75 per week at the store? Past history will show you how much these figures should really be.
3. Not Taking Due Dates Into Account
One of the goals of budgeting should be to ensure that you always have enough money in your bank account to pay for your bills before they are due. However, you may have noticed that your credit card due date or due dates on other bills seem to change by a few days each billing cycle. Furthermore, unless you get paid on a monthly basis or on the first and 15th of every month, it can be difficult for you to accurately determine how much money you will have in your bank account on a given day of the month. With this in mind, you can see that the best budget is one that actually has dates rather than one that is just a list of your creditors and the payment amount.
4. Failing to Plan for Irregular Expenses
Most of your bills have a monthly payment due, but there are some irregular expenses that you may pay for only every two or three months. For example, many homeowner’s association dues are paid quarterly or even semi-annually. You may have a special service, such as pest service or housecleaning service, that you pay for every couple of months. While these are not monthly expenses, they are nonetheless expenses that you are responsible for. Failing to take them into account can lead to a budgeting disaster.
5. Not Projecting Into the Future
A budget is a financial planning tool, so it is a fallacy not to use it as such. Many people who develop a budget list out their monthly income and monthly expenses, and they call it a day. However, your budget today isn’t going to be the same as it is next month or six months from now. You may be getting a raise, or perhaps a credit card will be paid off soon. Your utilities in June are not the same amount as they are in December. Furthermore, your bank account will hopefully not be depleted of funds at the start of each new pay cycle. The best budget is one that is ongoing in nature. You may consider developing a budget that projects income and expenses for the next six or even eight months out. You can account for carryover funds from one pay period to the next, and you can more easily budget for those annual expenses like holiday gifts or back-to-school clothes for the kids.
The fact is that if you want your budget to really work for you, you need to identify these mistakes in your previous budgets and develop an improved budget today.