Budgets are there for one sole reason : to guide a person to live within his own financial means. However, not all people create effective budgets or have the proper mindset before even starting one. In this article, we’re going to explore the most common budgeting mistakes. Keep reading to find out if you’re guilty of doing one of these:
Not Having a Budget
Making a budget scares a lot of people. That’s why a lot of us tend to avoid it. And it’s not hard to understand why people dislike budgeting. When you make a budget, you plan how you use your money. You learn to make hard but important financial sacrifices. It requires daily tedious tracking and lots of effort. For the average busy person or someone who dislikes routine work, budgeting can be a lot of trouble.
You can budget without even using a pen and paper or creating an excel file.
However, it shouldn’t be. There are plenty of ways to budget without even using a pen and paper or creating an excel file. Today, there are lots of tools to help you manage and keep track of your budget in less than a few minutes. Here are some of the best tools, resources, and apps for budgeting:
There are plenty of tools, resources, and apps that helps you keep track of your budget with ease.
Guesstimating Your Expenses and Cash Flow
It’s hard to stick with a proper budget if you keep guessing and estimating the numbers. Did you get a raise? Did you overspend this week? Get yourself to put everything on record. Always, keep track of your financial situations as they change. Don’t guess. Create a system to help you track your finances. You can use apps listed above or if you enjoy doing it yourself just go to excel and start making your own expense/income tracker. Also, always keep a handy notebook & pen (or use Evernote!). You can’t remember everything but if you have it listed down, you’re 99% more likely to get it right.
Planning a proper budget can't rely on estimates and guesswork.
Not Having an Emergency Fund
Car wrecks, house repairs and health issues are the most common emergencies.
Accidents happen when we least expect them. They’re a part of life. Unless you have the power to predict the future, we can’t really know when they can ruin a perfectly good day. Therefore, they should be part of everybody’s financial plans.
What are the most common emergencies? Car wrecks, house repairs and health issues. Building emergency funds and applying for insurance can help you live more securely and happily.
Not Planning for Your Splurges
We work to live a comfortable life, to earn money to buy the things we want. Budgeting doesn’t mean you have to sacrifice everything and live a pauper’s life. The only way you can love your budget is if you plan for your splurges. 5-10% of your income should be saved for your wants.
When planning a budget always include some for splurges.
Mistaking Wants as Needs
Many of the expenses you’re paying for every month, may just be a ‘wants’ that you’re believing are needs.
Differentiating wants and needs is the first thing you have to learn to create an effective budget and proper saving goals. It’s the one thing that trips up most people. It’s one of the main reasons budgets don’t work as expected. You don’t need a lot of clothes. You don’t even need a big house. Many of the expenses you’re paying for every month, may just be a ‘wants’ that you’re believing are needs.
So what exactly are “needs”? Things like housing, food, transportation, insurance gas & electricity. What are wants? Paid entertainment, travel, brand name designer clothes, etc.