It is unfortunate that many budgeting errors that you may be making are due to a lack of attention to detail. When it comes to keeping a budget, you don’t want to make little mistakes that lead to big losses. The good news is that avoiding these budgeting mistakes is easier than you’d think. Here are some of the most common budgeting errors that people make and how you can avoid them.
Here are 19 Budgeting Errors that You Bay Be Making
1. Under budgeting
First, make sure that you are budgeting everything in your life. That includes your monthly bills as well as possible unexpected expenses. You will also want to budget your savings so you can invest in your future.
To avoid making this budgeting error, it’s a good idea to sit down each month and figure out every part of your budget so you don’t miss anything.
2. Not preparing for an emergency
The vast majority of Americans don’t have money saved up for an emergency. That could be a big problem when it comes to emergency repairs on a vehicle or around the house. To make sure that you are prepared for those little emergencies, have some money set aside each month. Having as little as $500 saved can go a long way to giving you peace of mind.
According to a MarketWatch report finding was that “nearly 25% of all Americans do not have emergency savings and 16% took more debt after experiencing it“. It reinforces the reason why lack of savings is dangerous as it may lead to more debt accumulation when you’re hit by an emergency event.
Here are the most common and likely emergencies:
Car repairs. The most common auto repair typically costs $250-$500 range
Home emergency repairs for instance to repair is a clogged up or leaky sink or faucet. The average plumbing repair bill to fix the issue ranges between $150 and $400.
3. Not being on the same page with a spouse
Money problems are one of the leading reasons for divorce in the United States. Therefore, it is important that you and your spouse are on the same page when it comes to monthly budgeting.
Spend at least an hour a week discussing how much money is coming into the house and how much needs to be spent. Also, discuss saving and investing for the future.
4. Not writing down expenditures
You don’t want to get caught with not enough money for all of your bills. Therefore, you will want to write down all of your expenses and have a plan to pay everything that you owe on time. This will save you from having to deal with late fees and interest rate hikes.
5. Making things too difficult for yourself
Just because you are sticking to a budget, doesn’t mean you have to torture yourself when it comes to managing your money. Be sure to set aside some money that allows you to buy things that you want.
Budgeting is not all about restricting you from having fun in life; it’s should allow you experience new life realities and opening up to new opportunities for more fun activities.
Not budgeting for fun is one of the top budgeting errors that you may be making. Just make sure that all of your expenses are covered and you have money to save and invest.
6. Too restrictive – set and forget mentality
Don’t try to set all of your budgets in stone. After all, situations change you have to learn to be able to adjust to things like income adjustments and increases in expenses. Be able to remain flexible when creating your budget.
7. Failing to pay yourself
Most people have not saved and invested enough for their retirement. This can be a big problem because it will be harder to work and stay productive in your later years. Don’t forget to pay yourself first. That will ensure a happy and healthy retirement.
8. Not accounting for emergencies
Be sure to have money for any emergency that can possibly come up. Some emergency situations include car repairs, home repairs, job loss, medical expenses, and more.
Save a little bit of money as a “rainy day” fund. You never know when you are going to need it.
9. Not giving your budget enough time to work
Make sure that you give your budget enough time to work. Try to set an annual as well as a monthly budget. This will allow you to better account for all of your expenses.
Overspending is perhaps the biggest reasons why people have trouble maintaining a budget. Over expenditure is caused by unplanned or impulse purchases, following the crowd (friends and neighbours), and stress. Control your impulse purchases by not making many unplanned purchases.
Do not go to the mall or online to make unnecessary impulse purchases as a stress reliever or therapy. Obviously, if you don’t have cash handy it will result in more debt accumulation and accumulation of junk in your household.
11. Just too tight
The opposite of overspending is being overly tight with your money. You want to make sure that you spend money the right way. For instance, don’t skip that oil change to save $50. Delaying your vehicle’s oil change could cost you hundreds of dollars in vehicle repairs down the road.
Giving yourself no flexibility in your budget is a recipe for disaster because if you overspend even by a couple of dollars for instance buying a $5 Starbucks coffee will likely bust it. It’s mentally exhausting when you are living on such a tight budget which makes it more likely to be ditched in frustration.
This is one of the top budgeting errors that you may be making. The best solution is to provide some extra room in the budget to give you some breathing space.
12. Not finding a budget that suits your needs
No two people are the same. Therefore, you need to set a budget that is right for you. For instance, if you are older, then you may want to save more for retirement if you don’t have enough. If you are young, then you may want to invest in your education.
13. Not budgeting for gifts
Chances are that you are going to have to buy gifts for friends and family. It’s a good idea to see whose birthday is coming up the next month and set aside money for their gift. That will save you the trouble of scrambling for money days before the birthday, anniversary, or holiday.
14. Guessing for expenses
Another common of common budgeting mistake that you may be making is guessing for expenses. When it comes to your expenses, you want to make sure that you have enough money to cover everything that you need.
Avoid guessing monthly expenses like the gas bill is around $400, or the water bill is roughly $70 per month. You want to be as precise as possible when making your budget. Be sure to look over your bills to have a more accurate account for your expenses.
15. Forgetting to budget for unusual expenses
You may have some unusual expenses that may come up from time to time. For instance, you may have an illness that requires you to spend some out-of-pocket cash for your medications. Be sure to always have money set aside for expenses that you do not expect.
16. Not realistic
Try to be realistic about your expenses. Make sure that you can afford everything that you want to buy. That’s why it is important to look at all of your expenses and income. This will allow you to have a realistic perspective when you set your budget.
An unrealistic budget is demotivating to follow and one of the most frustrating budgeting errors that you may be making. You cannot factor into a budget a pay raise that is yet to happen or a bonus that may or may not happen. Reality should determine your budget period.
17. Not updating it over time
Be sure to update your budget from time to time. For instance, if your income changes, you will want to be able to adjust your savings rate. You will also want to account for changes in your bills and overall expenses.
Reviewing Your Budget Important because
Reviewing your budget helps you to control your spending habits, and boost your savings. It’s a key part of proper money management and an important element of personal finance.
18. Not checking your budget regularly
Make sure you check your budget at least once a month. You don’t want to plan a guessing game when it comes to estimating your income and expenses. This will make you better prepared against the unexpected.
Checking your budget regularly moves you towards your long-term financial goals. It allows you to spot an area that is under-budgeted, therefore, needs more cash allocation. For instance, if you review your budget and see that you are not saving enough, it makes sense to boost your saving to help you achieve your saving goal.
Reviewing your budget regularly helps you avoid top budgeting errors that you may be making and bring you back on the path to financial freedom.
19. Not communicating with partner
Set up a monthly budget meeting to go over your finances, you can combine finances or separate them . Do whatever works best for you as a couple. If one spouse commits an error, agree on a solution and move forward. Do not dwell on each other’s mistakes or get so worked up about them.
When you avoid common budgeting mistakes, you will be able to remove a lot of financial stress that plagues other people’s lives. Be sure to set a budget on a regular basis, spend wisely, and be prepared for the unexpected. Before you know it, you’ll be a master of your own budget. All these top budgeting errors that you may be making are totally avoidable. Pick one error at a time to start correcting, and within no time you will have a flawless budget.