You have a budget? Congratulations. Having a budget is the first and most important step towards smart money management. In fact, it’s virtually impossible to do a good job of managing your money without a budget. However, creating a good budget is not an easy task. And even after you have one it’s easy to make mistakes. Here are eight of the biggest blunders people make in budgeting and how they can be fixed.
Neglecting to have a system
What system do you use for tracking your spending? If you don’t have one, it’s important to get one. You could use a budgeting app such as Mint or an old school system like Mvelopes. The fact is that if you don’t have a system for tracking your spending you won’t know where your money’s going and won’t be able to make adjustments to your budget as prove necessary. It really doesn’t matter which system you use. The critical thing is to pick one and then stick with it.
Creating too rigid a budget
Despite what you might think you won’t spend the identical amount of money in the same categories every month. You need to have enough space in your budget to accommodate seasonal fluctuations such as Christmas holiday shopping and summer vacations. If you create a budget that’s too rigid you may find it hard to stick to it, which would derail all of your best planning.
Even the best of budgets will prove useless if you refuse to stick with it. You will need to cut down considerably – or even totally eliminate – impulse shopping and the habits that lead you to it. For example, if your Achilles’ heel is jewelry, stay away from jewelry stores. If you just can’t pass up the latest and most fashionable shoes, then don’t go to shoe stores or the mall.
Not accounting for quarterly and semiannual bills
One of the biggest blunders made by even the smartest of budgeters is forgetting their quarterly and semiannual bills. You need to leave room in your budget to cover them so that they don’t jump up and poke a hole in your budget when they’re due. Bills in this category include things such as annual tax bills, insurance payments and vehicle maintenance payments. Next time you have a few minutes, sit down, go over your old checking account records and make a list of your semiannual and quarterly payments. Then adjust your budget to make sure the money will be there when those payments come due.
Forgetting to save
A good budget needs to include money for saving as well as monthly expenses. The sad fact is that if you’re not saving regularly for retirement you’ll probably never be able to retire. You also need to make room in your budget for an emergency fund. The “experts” say an emergency fund should be the equivalent of six months’ living expenses but that’s a pretty lofty goal. A good start would be to save $1000, which would be enough to at least cover an emergency auto repair or medical bill.
Not budgeting for long-term financial goals
You really need to have some long-term goals and be saving toward them. This could be as little as just $10 a month to fund a new bedroom set or summer vacation. Having a goal and seeing that you’re making progress towards realizing it can be a real motivator to help you stay on your budget.
Refusing to be flexible on your fixed expenses
You may think that your fixed expenses such as rent or your mortgage payment, cable bills, utilities and insurance premiums can’t be altered but they can be. If you’re having a problem sticking to your budget think about downsizing to a smaller house or apartment, cutting your cable or trading in your car for an older one. Getting an older car should even lower your insurance premiums. In this era of Netflix, Hulu and Amazon Prime there’s just no reason to stay with a cable company. Most of today’s TVs have built-in tuners to receive local channels so that all you need to do to enjoy network broadcasts is buy a small antenna. Couple this with a subscription to Netflix or Hulu and you will be able to get just about all the programming you could want and for a fraction of what you’re paying for cable.
Failing to review your budget
If you’re not reviewing your budget every month you’re making a big mistake. This is especially important when you begin budgeting so you will be able to catch any expenses you forgot or any miscalculations you made on your regular bills. And if you do find inaccuracies you will need to tweak your budget to fix them.