Budgeting is the most basic financial tool that everyone should know how to do. This might give you the impression that everyone knows exactly what they are doing and are comfortable with the important aspects of budgeting.
However, according to financial advisors, many people keep making the same budgeting mistakes over and over again. Mistakes that could be costing them major amounts of money!
When learning how to make and keep your budget, you tend to focus on what you should do. But it is just as important to learn what you should not do so that you can avoid the most common budgeting mistakes others make.
Five Common Budgeting Mistakes
These are five common mistakes people make when it comes to budgeting.
1. Setting Unrealistic Expectations
When you are first getting invested in the idea of turning your finances around, it’s common that you may become a little too zealous in your goals. If you typically spend $400 on food every month, it’d be a little unrealistic to set your budget to$200 a month. You are setting yourself up for failure, which will only discourage you further. Instead, be realistic and flexible with your financial goals and milestones.
2. Forgetting the Emergency Fund
Many people tend to assume you ought to budget now and save later, but it’s always much better to do both at the same time. Not having an emergency fund set up is a bad idea. Sure, if you don’t have an emergency fund you can always rely on credit cards for a short time or get an auto title loan. But it is always smart to have money set aside specifically for emergencies.
3. Keeping Your Budget Unchanged
You must consider how various aspects in your life can fluctuate month to month, such as your expenses and your income. If you set up a budget and leave it alone, expecting yourself to match it consistently every month, it won’t turn out well. Allow your budget to evolve with the changes that life brings and the seasonal needs that require more or less spending.
4. Leaving the Small Things Out
Remember that budgeting small items is still necessary. This includes costs like coffee, vending machine purchases, fast food, etc. Yes, these items are only a few bucks each, but fitting them into your budget will be very helpful for you to see how much you are actually spending every month. And maybe seeing how much you spend will inspire you to minimize those costs.
5. Ignoring Fun Expenses Completely
Splurges are totally okay and entertainment expenses are an important part of personal finances, but it is important to plan for them. If you cut out fun spending completely from your budget, then you are bound to drive yourself crazy and wreck your whole budget. So, budget those fun expenses that make your life more enjoyable and then stick to the amount you’ve decided to spend. It will make the whole process easier on you.
No one really wants to put in tons of time and effort on something as boring as budgeting, but it’s all worth it. Because if you can get a hand on budgeting, then you could experienceamazing financial freedom and possibility in your future.