The 10 Biggest Mistakes You Make When Budgeting
Having a budget is critical as it allows you to have a clear idea of your finances and lets you know how much you spend and when to avoid costs that are unnecessary. But it is easy to make mistakes when making a budget. This is our list of common mistakes that people often make when you make a budget for you to avoid making them.
1.Estimating how much you spend
Before you start a budget, it is important to have a clear idea of both your earning and expenses. You have to determine which costs are essential and which can be removed. Not being aware of those number will cause your budget not to be accurate.
If you are not sure of how much you earn, spend or save, you can always start a trial month, when you write down everything you spend and keep track of every penny you have. Don’t forget even the smallest things- you won’t feel how they add up at the end!
Give yourself some time until you figure out how to distribute and manage your money and which expenses you should keep. Budgets are flexible and you can always adapt the numbers, add and remove new-coming costs.
2. Forgetting your ‘safety blanket’
Even if you perfectly plan your fixed and variable expenses, there’s often a big chance that you would get some unexpected costs. And then it the time to be prepared for them. Set aside a reasonable amount of money as a ‘safety blanket’ so you can be calm that in case of an emergency you’ve got it covered.
3. Having unrealistic expectations
One of the main points of a budget is to draw you a clear picture of your financial situation and help you adapt it. However, all expectations of it have to be realistic and you shouldn’t expect huge changes or improvements in a short period.
Your budget limitations depend entirely on yourself and are different for everyone. We all have various costs that we consider essential and while some may cut down entertainment costs, others may love going to concerts for example and keep that expense in their budgets.
4. Make a budget based on your gross income
Although it seems obvious, there are many people make this mistake. Whatever it is that you actually earn (before taxes for example) you cannot take into consideration when making a budget.
The money that should be registered in it as your income are those that you receive in your bank account after all the deductions have been made.
5. Failure to consider cheaper alternatives
You will most likely need to reduce costs in order to save money and fit in your budget, but there’s no need to deprive yourself of things you love. Instead, try to look through your fixed expenses and consider alternatives.
Maybe your rent is too high, so why not look for a cheaper place? It may be winter and your electricity bill is off the hook? Ask for usage records or contact a different supplier that may offer you a more affordable rate.
Those type of costs will always be there, but that doesn’t mean that you aren’t able to reduce them and make your budget for other things a little wider.
6. Having too many bank accounts
By having several credit cards and bank accounts, it is easy to lose track of what is being spent. Simplicity is always better when you want to monitor your spending and keep up with a budget.
Find out which bank offers the lowest fees and doesn’t charge for ATM withdrawals and close all your accounts in other banks. They have monthly or yearly fees for using their service that you may not be realizing.
Also, try to use cash as much as possible. When you see physical money in your wallet you get an actual impression of how much you have. When they are in your credit card that you use for paying it is extremely easy to lose track of what is going on.
7. Do not adjust the budget
The budget should not be fixed, since it is necessary to adapt the costs in the budget to improve your financial situation. If you see that last month you spent too much on shopping or other forms of entertainment, it is important to adjust your budget and avoid overspending the next months. Indulging every now and then is fine, but it is a problem when it becomes a routine.
8. Use money set for other budget categories
You have made your budget but end up spending all the money you set aside for Christmas presents for your family on impulsive shopping. This is why budgets have their categories- everything saved has its purpose and using it for something else is breaking the budget.
Also, have in mind that a surplus in one category, doesn’t mean that those money should be spent recklessly. If you are under your maximum target for shopping this month, don’t waste your money away and rather collect them as savings.
9. Not setting aside for entertainment costs
Trying to save money does not necessarily mean to stop doing things you enjoy. The important thing is to do everything in a moderate pace.
In addition, if you do not leave out any money for entertainment, you’ll eventually end up getting money from other expenses so that you can go out with your friends. It is better to have them and not use them, but make sure you plan this type of cost in your budget.
10. Thinking budgets are useless
Budgeting might not be the most fun thing to do, but it is necessary if you want to save some money. Visualizing your financial situation is important for you to realize how much exactly you spend and whether you can afford it.