Common Budgeting Mistakes and How to Fix Them
Getting a basic budget is n’t all that hard, and a few tips and tricks can help you make it really solid. But even a good budget can go awry. There are a few confusing bugs out there, but the good news is that these bugs are fairly easy to fix.
Budget too tight
Budgeting is far from fun – it involves paying taxes and changing cat litter – but the feeling you get by budgeting and getting your finances in order can be quite fun.
And in this excitement, many of us are carried away by an unrealistic budget that is too strict.
I was here. I’ve written about this before , but after college I read a lot about personal finance and I was thrilled to spend my money on what I wanted to do . I wanted to pay off my student loans as soon as possible, so I built a budget that had no room for entertainment, indulgences, or discretionary spending. Big surprise: it backfired. Even the tiniest purchase on its own will destroy my budget, making it pointless.
Another problem with an overly tight budget is that you are tired of limiting yourself and keep spending. Then you end up spending more than if you just gave yourself a small amount of “fun money” to spend.
Better option? A budget for the life you have. When reviewing your budget and assigning expense categories, be realistic. Don’t tell yourself that you will never buy any unnecessary items because you are setting yourself up for failure. Give yourself a break.
Budgeting for a Life You Can’t Afford
On the flip side of the coin is such a small thing as lifestyle inflation . Lifestyle inflation becomes a problem when you waste a life you cannot afford. It might sneak up: subscribe to HBO here; there is a gorgeous dinner. Before you know it, your budget is bloated and you are getting more out than you are getting. To justify these expenses, many people simply plan to pay next month’s paycheck to pay for last month’s expenses. “The rent is due on the 1st, but I get paid on the 5th; hopefully they don’t cash the check until then. “
Numbers and dates can add up, but it still puts pressure on your budget and prompts you to live on a paycheck to paycheck cycle . Many people get stuck in this cycle because they really can’t make ends meet , but many people can get stuck because they spend money on an unrealistic lifestyle. If this sounds familiar, it’s probably worth starting from scratch. Assess your financial situation, cut costs, prioritize your monetary goals, and then create a new spending plan.
Budgeting without a goal
It’s hard to stick to a budget that doesn’t have a goal. What’s the point? When it isn’t there, your budget becomes a sideline rather than a spending plan to meet your financial goals.
After I got out of debt, my budget didn’t have a specific purpose. I knew I wanted to save money and live beyond my means because that’s what all those personal finance books were talking about, but there was no specific reason why I was saving, so I wasn’t very active on it. I bought a lot of things that I didn’t need and I didn’t keep track of spending in the restaurant. My plan was this: spend whatever I want and put the rest on hold.
You can do this if you have debts too. You have no real referral, so you just make your minimum monthly debt payments and spend the rest. Rather than thinking last about your savings or debt, take the time to define it . What do you really want to do with your money? If it’s a big goal, you may need to set smaller milestones . Either way, formulate a goal for your budget and then categorize that goal. For example, after getting out of debt, I took a moment to think about what I wanted to do with my money and decided I wanted to go outside the States – which I had never done. So that became my new budget goal.
An 80/20 budget is great for this because you invest 20% on your goals and 80% on everything else. This is what you are already doing, but now your goal has a number, and you can change that number as you see fit.
Forget about irregular expenses
If you keep spending your budget due to expenses “popping up” every month, you are probably not counting irregular expenses. This is a common budget issue and is easy to fix: find those quarterly, annual, and other seemingly random expenses and add them up!
Think about all your irregular expenses, and if you are stumped, check your bank statements for the last year. Here are some common expenses people often forget to add to their budget:
- Auto insurance premiums
- Higher utility bills in winter and summer
- Holiday spending
- Web hosting cost
- Predictable pet bills, such as vaccinations
- Oil change and other car maintenance
- Home renovation projects
- Quarterly taxes
- School supplies
You can easily factor these into your budget by taking the annual costs and averaging them monthly. This translates your $ 400 holiday spending into a $ 33 monthly “payment”. You simply set aside that amount every month so that when the bill comes in, you have the cash. If you use a budgeting tool like Mint , it does all the work for you.
But there may be costs you might not expect. A relative’s wedding is one month. A month after that, your car needed a new battery. If something comes up every month, you can budget for it as well . Add an “Everything Else” budget to set aside some money for the expected, unexpected expenses that come up each month. Your budget may be very tight, but at least now you have something to work on.
Lack of pillow
Irregular spending also shows why it is so important to have a contingency fund. When your car breaks down, you have the money to get it out, instead of messing with your budget for the next few months until you bounce back. It may take you some time and slow your progress towards your goal, but creating an emergency fund will keep you from going broke on your budget.
In addition to having a safety net in the form of a reserve fund, it also helps to err on the side of budget overruns . As Femme Frugality says: “Budget liberally. Spend conservatively. ” This is how she says it:
A massive budget means that when you think you’ll spend $ 75 on gas this month, your budget is $ 100. This means that no matter how much you think you need, you plan more. This means you can’t push the numbers down to unrealistically low levels to match your income.
When you get your numbers, you’ll see if you need to hurry up to attract more. This is much better than walking to the end of the month and realizing that you should have hurried up to make more money because now you don’t have enough food to put it on the table.
This is a proactive step, and when it comes to your budget, it’s a smart move.
While we’re fans of automating your finances , that doesn’t mean you should forget about them and never come back to them again. Your budget can change along with the changes in your life. Check it back from time to time to make sure it still serves you well.