10 Mistakes About Budgeting You Need to Correct
If you are thinking of starting a budget plan and thinking of ways you can make it work out, there are tips and tricks you should know and there are common mistakes you should be mindful about. It is very crucial to know about these factors before starting your budget plan so you would know which factors you should consider for your budget plan to be successful and be responsive to your needs, wants and of course your priorities.
The biggest misconception about budgeting, which makes people turn away from it, is that it keeps you away from your wants thus depriving you of all the good things about life. However, this isn’t true. Truth is that a good budget plan makes your cash flow clearer consequently providing you better accounts to pay for your bills as well as to save up for the future. If you did your budget plan well then you’ll be able to enjoy a good quality of life too especially in the future.
If you are worried that you’ll make ignorant mistakes, this article is just right for you. This article compiled budgeting mistakes most people commit. Knowing these you’ll be able to arm yourself with enough knowledge so you can avoid unfavourable budget situations. If you’re ready, let’s start!
- Using estimates
When creating a good budget plan, estimating your expenses isn’t going to work because you always spend much more than you expect. So what should be done?
What you need to do is to create a budget plan based on your expenses the previous month. So before starting your budget plan you need to track your cash flow – how much money do you earn from work or from your investments and your expenses for a month. You need to identify where your money goes and list all these things. This way you’ll be able to create a more comprehensive and realistic budget plan.
- Forgetting about your emergency fund
A budget plan is created to manage your money well enough to open opportunities for saving up. When you make a budget plan with a fixed budget along with fixed variables you may forget about saving up for emergencies. We cannot deny that there are unexpected variables that could happen which can cause you to use what you already saved up.
Your emergency fund should be separated from your savings account, this way even if an emergency happens you will be able to avoid using money already saved up and allotted for a goal you wish to attain.
- Having way too high expectations
You create a budget plan in order to create better opportunities to save up and a better lifestyle in the future. However, when you get too excited thinking about your goals and what you can do when you are done saving up you can have unrealistic expectations which can lead to an unachievable and unrealistic budget plan.
You might expect too much of yourself and think that you can do this and that in order to save up. Take this as an example, during planning you may think that you can stop ordering takeouts, and think about cooking your food for the month to save up if possible. However, this won’t work out especially if you are used to ordering takeouts. These expectations can mess up and ruin our budget plan. What you can do is to make more realistic plans like instead of ordering take outs every day of the week, why not try ordering takeouts three times a week. This way you ease pressure on yourself while being more realistic.
- Budgeting Based on Your Gross Income
You should never ever base your budget on your gross income. Your budget shall be based on your net income, when all your taxes, insurance, as well as your other deductions are already deducted. This way you can make a more realistic budget based on how much money you really take home.
- Not looking for alternatives
Listing out all your expenses is not the end of tracking your expenses to make a good budget plan. Once you are done with this step you need to figure out which items on your list can be cut back or be lessened if you can find cheaper alternatives. A simple example could be instead of buying soda why not just buy water. You won’t just only save up but be able to avoid soda which is also bad for your health!
- Having too many credit cards
If you are really determined to save up you cannot really rely on credit cards. The main reason behind this is that when you own a lot of credit cards it would be hard to keep track of what you are buying and paying for. You may lose track of your budget too and be tempted to spend way more than your budget allows you to. Also, too many credit cards mean too much interest too, an interest that is harder to pay off if not paid on schedule. In simpler terms having too many credit cards messes up the purpose of a budget plan.
- Spreading Yourself Too Thin
When you are creating a budget plan, you also include savings and these savings could be used for a vacation you want to take, a product you want to buy, even for your retirement. However, if you’re saving up too much for varied purposes, think about how you’re going to fit your remaining money into your expenses. So keep in mind that saving up for different purposes is just unrealistic so better take one or two goals at a time. Experts say that the ideal savings you can go for and not sacrifice the quality of life are to save up 20% of your income. So save up this amount for more realistic and achievable goals.
- Never adjusting your expenses
Once you have your list of expenses you need to list out what is needed to be cut off and be lessened as mentioned earlier. If you are not willing to readjust your list of expenses even after finding out it is way too expensive for your budget then being able to manage money wouldn’t be possible. You have to be able to open yourself up for adjustments like lessening shopping expenses or cutting off your movie visits to have a successful budget plan.
- Spending your money already saved up
If you are really determined to save up and want to achieve your goals you should never spend money you already have and secured in your savings account. Fight this temptation and follow your budget plan. This way you save what is intended to be saved and in time be able to have what you saved up for.
- Never updating your budget
Prices change way too faster than you can expect thus never updating your budget plan even if you know that market prices increased compared to previous months, will ruin your budget plan. Thus, you have to check market prices to adjust your budget plan so you can find a solution before messing up.