Creating a budget is the first step in the right direction. However, a lot of people find it hard to stick to their budgets and get the best out of it. If you are among these people, then you might be committing some terrible budgeting mistakes that can be avoided.
Keep in mind that the primary purpose of creating a budget is to ensure that you get closer to your financial goals. Unfortunately, committing any of these mistakes only makes things worse. Here aresome of the common budgeting mistakes and how to fix them.
Making Your Budget Too Strict
Most of us can agree that budgeting is far from exciting, and sometimes you have to force yourself to do it. But, the kind of feeling you get from creating a budget and sticking to it can be fun. With that fun and excitement, you may be carried away into the trap of setting an unrealistic budget that is too strict.
Many of us have been there before, and we can agree that it doesn’t help. The truth is that nothing is going to work if you create a strict budget. Everything will most likely backfire.
Finally, you may end up spending more than what you would have if you allocated yourself a small amount for fun when creating the budget.
Solution:To solve this problem, start budgeting for a life that you have. When you are going through your budget and assigning money to each category, be realistic.
For instance, don’t tell yourself that you will never buy any discretionary item because you will be setting yourself up for big failure. Always give yourself some breathing room in your budget.
Skipping the Emergency Fund
The primary purpose of your emergency fund is to eliminate the need for tapping into credit cards or going for a no credit check loanwhen unexpected expenses come up. In fact, it is not a matter of “if” something happens but “when” it happens.
With an emergency fund, you don’t have to worry about the risk of getting caught up in a cycle of debt because you will always have extra funds to cater to your emergency expenses.
Solution:If you discover that you have set nothing aside, try creating a savings account and channel a small portion of your monthly earnings there. Consider automating this process so that you don’t feel pain moving money from your checking account into your savings account. Start with a small amount and grow it gradually as time goes.
Did you know that you can easily miss some minor expenses when creating your monthly budget? Small things such as your morning coffee or eating out every Friday may not seem like large expenses, but they can cost you a lot of money in the long run.
Therefore, it is critical to include them in your budget. Don’t assume any expense no matter how small you think it is while creating your budget.
Solution:But how do you manage to capture all the expenses? Well, the simple answer is looking at your bank statement and credit card statement.
These two statements will give details of every transaction you made during the previous month, including even the smallest transaction amounts. From there, you can easily identify all of your expenses and proceed to include them in your budget.
Budgeting for a Lifestyle You Cannot Afford
Lastly, you must be wary of lifestyle inflation when creating your budget. This problem arises when you are budgeting for a lifestyle that you cannot afford at all. For instance, you are adding a fancy dinner here, a holiday there, and a shopping spree over the weekend.
Before you know it, your budget is already inflated, and you have got more money going out more than what is coming in. To justify such a lifestyle, a lot of people will start budgeting for next month’s paycheck to cover last month’s expenses.
This is always a bad idea because you end up putting a lot of pressure on your budget, and you may soon find yourself drowning in debt.
Solution:To avoid committing this mistake, make sure you thoroughly assess your financial situation and prioritize your money goals before you start creating your budget.