Having a budget is vital for financial wellbeing whether to save for vacations, clear debt, or put away for the future. But when it comes to budgeting, it is easy to get tripped up by a few blunders that will easily derail your hard work. We’ve compiled five of these common slip-ups and how to fix them, so that you don’t have to learn the hard way.
Mistake #1: Budgeting with estimates.
The first step in budgeting is figuring out your current expenses. Working with an estimate of your spending is a recipe for disaster. More than likely you spend much more than you think. It’s important to know exactly what you’re spending so that you can see the true difference between your expenses and your income.
The Fix: Take the time to track all of your expenses – every single one – over at least a month. That means not forgetting about the small items you spend money on whether it’s a coffee on the way to work, a smoothie after a workout, or your regular manicure. You’ll get a realistic look at where you’re spending money and where you just might be able to cut back.
Mistake #2: Shortsightedness.
If you spend time tracking each of your expenses for just one month, there are multiple ways that you can derail a budget if you do not look ahead in your spending. This includes maintenance costs after home buying, car repairs, annual insurance payments, and retirement or emergency saving.
The Fix: Take the time to compile all of the annual expenses you already know you have to insure that you have them budgeted across the year. In addition, spend time planning for the mid-term and long-term including expenses like your children’s college education or savings in case of an emergency.
Mistake #3: Unrealistic expectations.
While it might not sound like it, budgeting can be really exciting if you’re working hard to pay down debt or save up for something special. However, we can all get so carried away that when we see how fast those numbers could add up, we create budgets that become virtually impossible to stick to. Are you really going to go from eating out five times a week to zero instantaneously?
The Fix: Set goals that are attainable but still allow for some flexible fun spending – even if it’s something small. If you know you have allocated money in your budget for fun, it will help keep you from blowing it on something trivial. This allows you to keep taking small steps to reach your goals.
Mistake #4: Keeping up with the Joneses.
It is so common to become competitive with your finances by comparing yourself to those around you. When you see friends getting new cars or new homes you might be drawn to do the same. Not only does this cause emotional stress, but if you act on your impulses you can blow your budget.
The Fix: Focus on your own financial goals. You never know the true financial situation of any person except yourself. Your friend who just bought a new car may have a larger income than you do, or she may be up to her eyeballs in debt. Either way, keeping your own goals in sight can give you the encouragement you need to resist those pulls toward unnecessary spending and a blown budget.
Mistake #5: Not having a budget!
We wouldn’t be putting this blog post into the world if we didn’t think that budgeting wasn’t crucial to financial health and wellbeing! Everyone can benefit from budgeting – you don’t have to be a cash-strapped college student or financially well off to reap the rewards.
The Fix: While there are definitely complexities involved with a detailed budget, at its core the premise is simple. Determine your income, track your expenses, and then figure out the difference. In this way you are proactive in your financial planning instead of reacting to the expenses you encounter. If the prospect seems daunting, just start small and put aside an hour at a time to work on your budget. Taking small steps will lead to great rewards.