Unless you have a magic money tree, it is likely that you will need to budget throughout your life. Budgeting is a lot easier said than done. No matter how good your intentions are, you may feel like you are never able to stick to the budget you have put together. If this sounds familiar, it could be that you are making one of the mistakes mentioned below.
Not having a cushion – One of the biggest things that will set you up for failure is if you set your spending limits to the lowest amount you predict you will spend. Unfortunately, this very rarely happens. Things are often more expensive than we anticipate them to be and unexpected costs crop up throughout the month. So, if you expect to spend ‘x’ amount on groceries this month, add an extra 25 per cent onto this figure. This will give you a nice cushion. It does not mean that you need to spend all of the money. If you don’t, you can add it to your savings account so that you build up a nice emergency fund for when an unexpected expense sneaks up on you
Choosing the wrong budgeting software – There is no shortage of helpful budgeting tools available today. You have everything from websites, to apps, to computer software programs. It is wise to take advantage of this, but it is important to choose with care. Not all budgeting platforms work in the same manner, so it is important to find one that you are comfortable with and that suits your incomings and outgoings. What works for one person won’t necessarily work for another person.
You aren’t earning enough – Unfortunately, the harsh truth could be that you simply aren’t earning enough money to cover the amount you spend. This means that you are living beyond your means, and you will need to make some cutbacks. There are, of course, families that are earning below the minimum income standard, and if this applies, click here for more information. It is likely that you have already cut your expenses back as much as you can, but if you aren’t earning enough, you may need to take further action.
Forgetting about irregular expenses – This is a mistake a lot of us are guilty of. We feel like we are doing just fine with our money, until we suddenly realise that we have an annual car taxation payment to make. This is just one example; there are plenty of irregular payments that can crop up along the way. After all, there is nothing worse than when you take your car in for an MOT only to discover there is a big problem with it! Or, what about your cousin that is getting married next month? You will need to spend money on a wedding gift, maybe even a hotel for the night, and a suit too! It quickly adds up. It is hard to predict irregular and unexpected expenses, but one thing you can predict is that they will crop up. The best thing to do is create an emergency fund. This ties in with the earlier point about having a cushion; you can move any money left over into your savings fund.
Never updating your budget – How can you expect to budget effectively if you use the same plan each and every month? From year to year, your expenses and income are going to change. This is why you need to update your budget; otherwise you could find yourself in a position whereby your current calculations are completely irrelevant.
Budgeting without a purpose – Ok, let’s be frank: budgeting is boring! No one wants to count every penny they make and carefully consider how they are going to spend it. However, there is one way you can make budgeting a bit more exciting, and this is with having a goal. This makes the process more rewarding and you are going to be much more motivated to achieve the goal you have put in place. You may have big goals, for example, retiring at a certain age or buying a house. But, if these goals seem far off, it can be difficult to save effectively. So, set yourself more immediate goals too, such as buying a certain gift for your partner for Christmas or paying off any debts you may have.
Owning too many financial accounts – Do you have numerous credit cards and debit cards? If so, this can make it very difficult to budget effectively because you can easily lose track of how you are spending your money. This is why it is wise to streamline and simplify your accounts. The last thing you want is overspending, revolving balances, late fees, and credit score damage. Yet, this could easily happen if you don’t have complete control and visibility regarding what is coming in and out.
You get over excited when payday comes around – Are you someone that waits for payday so they can spend all of their money? A lot of people like to celebrate payday by going out with their friends on the weekend and having a massive blowout. They party all weekend and check their bank balance on Sunday morning to see that they have not left themselves enough money for the month ahead. Does this sound familiar? If so, check out how to survive those pesky five weeks until payday. Of course, you will need to begin by making sure you control yourself once you see the big money roll into your bank account at the end of every month.
Not considering cheaper alternatives – You need to shop smart if you are to budget effectively. One way you can keep costs within budget is to lower expenses. However, you may feel that there are some costs that you cannot do anything about, for example, your utility bills. In fact, this could not be further from the truth. Review your utility bills on a monthly basis and look for ways to make savings. You can switch provider or find out if you are eligible for any discounts. Or, you could make changes around the home, for instance, investing in energy-saving light bulbs.
Making your budget too strict – If you make your budget too strict, you are simply setting yourself up for failure. Plus, you will be more inclined to give up altogether if you can never meet your targets. Your budget will simply become pointless if it is not realistic. You need to leave some wiggle room and ensure that you assign some money for enjoying yourself.
Budgeting based on your gross income – You may earn ‘x’ amount per year, but that money isn’t all yours, is it? You have the likes of insurance and taxes to take into account. If you are going to create a budget that is realistic, you need to factor in your take-home or net pay. Never use your gross income as a starting point.
Have you been making any of the budgeting mistakes mentioned above? If so, now is the time to get on top of your finances once and for all. Remember; don’t set yourself up for failure by giving yourself a mountain to climb. You need to establish realistic goals, ensure your manage your money effectively from payday to payday, and don’t live a life that is way above your means. If you can do this, you will be well on your way to budgeting success.