Common Budgeting Mistakes and How to Fix Them
If you've created a budget plan but find it difficult to stick with it, it could be because you're missing or ignoring these factors.
Creating your first budget was easy. Following it – well, that’s another matter altogether. If you’ve tried budgeting but it’s not working out the way you thought it would, it might be because you’re making common budgeting mistakes that lead to feelings of deprivation, don’t bring you any closer to your financial goals and result in the occasional late payment. Read on to learn how you can fix common budgeting slipups and be on the way to better money management by next month.
Mistake #1: Being unrealistic.
Underestimating your expenses will force your budget to be out of whack before the month even begins. When you try to make your income and expenses unrealistically fit your budget, it can lead to problems. For example, if you budget $70 a month for gasoline, but you actually spend $100, then you will go over budget.
How to Fix It:
Be realistic about your spending first. Only then should you make adjustments. Include more money than you think you’ll need for a particular category. Track spending over the next three months to confirm the amount that needs to be set aside for each category.
Mistake #2: Slashing fun.
A common misconception is that budgeting means the removal of all things fun in your life. The truth is that failing to plan for fun in your life will eventually backfire. Just as when you’re told you can never have your favorite ice cream while on your weight loss journey, you’re more likely to binge on two pints of cookies & cream at the first sign of stress. Similar to budgeting for a calorie splurge, you can budget for financial fun.
How to Fix It:
Add an expense category to your budget for miscellaneous fun. You can set up a separate savings account for this purpose or withdraw the money at the beginning of each month and set it aside.
Mistake #3: Not having financial goals.
Without a spending plan, you’re prone to make minimum debt payments and spend the rest on splurges. Even if you don’t have debt, extra money is likely to be spent on impulse purchases that do not improve your financial health over the long-term.
How to Fix It:
Write down your financial goals on a 3 x 5 card. Keep the card in your wallet. Each time you purchase with cash or your debit card, look at your goals, and it will be easier to skip impulse buys.
Mistake #4: You and your budget are a tracking mismatch.
You read somewhere that a budgeting app is the best way to keep track of your spending. But, weeks will go by before you log in to the app. While phone apps are a convenient way to track your progress, they’re not for everyone. You have to find the tracking system that works with your personality. The easier it is to keep tabs on your spending, the greater the likelihood that you’ll stick to your budget.
How to Fix It:
Make tracking expenses easier and you’ll increase the likelihood of sticking to your budget. There’s nothing wrong with going old school with a notepad and pencil. Take the next few months to try out different tracking systems. For example, use an envelope system one month and an Excel spreadsheet the next. After several months, compare the different methods to see which one you preferred and used on a consistent basis.
Mistake #5: Your budget is missing an irregular spending category.
Expenses that only appear quarterly or annually might seem difficult to budget for. Summer vacations, gifts, pet care, holiday spending, and back to school shopping are often considered irregular expenses. These expenses do not occur every month, but you do expect them at least annually.
How to Fix It:
You can still plan for each irregular expense. Here’s one way to do just that. Review last year’s holiday spending. An estimate will work. Take that figure and divide by 12. Schedule an automatic transfer from your Checking Plus account to your holiday spending account to make sure that you can enter the holiday season without busting your budget or going into debt.
It’s okay to abandon a budgeting process that doesn’t reflect the way you live. An effective budget must accurately display your income, expenses and include a plan to reach your financial goals. Life events such as a new addition to the household, change in income, or the purchase of a new home will all require updates to your budgeting process. Remember to review your budget at least monthly to ensure you’re on track to meeting your financial goals.