Look Out for These Budgeting Pitfalls…
Like anything that is worthwhile budgeting needs to be done carefully. Done well – it really can help you grow your wealth. Done poorly – it will only bring you frustration and disappointment.
For many of us budgeting is something we were not trained to do, and perhaps we’ve tried and felt we didn’t succeed. There is good news here today! You can succeed in establishing and sticking to your budget. Watch out for the pitfalls below and you will be well on your way to having a budget that is actually your friend for life!
I didn’t know it at the time, but creating and sticking to a budget was probably the best thing we have ever done for ourselves. It wasn’t always easy. And quite truthfully, the process made us take a hard look at ourselves and our shortcomings. On the other hand, we’re now more confident in our choices and building wealth like never before. We’re also on the same pen and paper budget that we started with, and there’s a reason why we haven’t changed anything. It works.
Sticking to a budget can feel cumbersome and restrictive. It might make you feel vulnerable or deprived. On the other hand, creating a budget can completely change your financial destiny. Have you ever tracked your spending and created a budget? Did it work? If you’ve tried and failed, there are a variety of reasons why your budget might not be working. Here are some possible explanations:
You’re underestimating your expenses
It can be difficult to estimate irregular expenses like utility bills. However, it’s important to be realistic about your estimated monthly costs. Overestimate your expenses if you have to. That way, you won’t always come up short.
You aren’t budgeting for everything
Are you forgetting to budget for gifts? Expenses for your children’s school? Did you forget your bi-annual car insurance bill? Make sure to think of everything that needs to be included in your monthly budget. Other expenses that are often overlooked can include home and auto maintenance and bills that are paid on an irregular basis. It’s more challenging to budget for these items, but it can be done. For example, if your car insurance needs to be paid every six months, you may want to budget 1/6 of your premium on a monthly basis.
You don’t have an emergency fund
Whenever unplanned expenses come up, an emergency fund can fill in the gaps without knocking your budget off track. It’s also important to only use your emergency fund for emergencies, and to not see it as an extension of your monthly budget.
– via www.getrichslowly.org
More Mistakes to Avoid When Budgeting
Your expectations and how you view your finances make a real difference in the end result when you are preparing a budget to live by. Pay close attention to the areas discussed here and avoid mistakes that can take your budgeting efforts off the rails!
You might be eager to improve your financial outlook, but you shouldn’t set your standards too high. Extreme budgeting looks good on paper, yet this approach isn’t always effective or realistic. “Novice budgeters, especially those trying to pay off credit card debt, often get the numbers to add up on paper but they have no basis in reality, said Stephanie Genkin, a financial planner in Brooklyn, N.Y. “I look at these budgets and ask these folks, are you really going to stop eating lunch out EVERY day when previously you were always eating out.” Instead, Genkin suggests starting small with baby steps, perhaps packing your lunch twice a week and gradually adding an extra day until you’re no longer eating out five days a week.
Budgeting Based on Your Gross Income
You might earn $40,000 a year, but after taxes, health insurance and other payroll deductions, your actual earnings are much less. For a realistic budget, you’ll need to create a spending plan based on your net or take-home pay.
Not Considering Cheaper Alternatives
Lowering expenses is one way to keep costs within budget, but you might feel like there’s little you can do about the cost of utilities. However, utility rates aren’t set in stone, and you have more options than you realize. Money-saving expert Andrea Woroch recommends reviewing monthly utility bills and looking for ways to save, such as searching for new providers and comparing rates, or speaking with a retention specialist to see if you’re eligible for a discount or special promotion. The company might lower your rate to retain your business.
Too Many Financial Accounts
If you have a handful of credit cards and multiple checking accounts, it’s easy to lose track of how you’re spending your cash. Woroch suggests simplifying and streamlining all your accounts. “With so many store cards and credit cards, you won’t be able to track spending nor stay on top of payments which can lead to costly disasters, including credit score damage, late fees, revolving balances and overspending,” Woroch said.
– via GOBankingRates
Have you ever made any of these budgeting mistakes? Can you make positive changes in your budget based on what you learned today?