10 Mistakes to Avoid When Budgeting
Saving money and keeping a safety net in place is an important financial goal for everyone. There are many reasons why budgeting is useful and how it can impact the quality of your life.
When deciding how to budget your savings, you need to think long-term. Budgeting takes time, and that’s why you need to make some serious lifestyle changes before you start seeing results.
Moreover, you need to avoid making common financial mistakes that eat up your savings, particularly the ones we’re told are harmless to our finances.
In this article, we'll examine 10 mistakes people make when deciding to budget and save money.
1. Not Tracking Your Budget:
The most common pitfall of all of them. This one happens due to a lack of oversight. Watching your budget, tracking expenses, and settling on a plan where you don’t go overboard with spending are really important things to do.
Not tracking your budget means you’ll never get a chance to see how and where you are spending money, and it leaves you prone to repeating mistakes all the time.
Even worse are the ones who don’t have a budget in the first place. Do not be one of them.
There are various tools that can help you keep track of things. A spreadsheet, an app, or just a small notebook are all valid ways of writing down every detail related to your finances.
2. Inflexibility With Money:
Being inflexible in this context means being unable to make adjustments depending on your current financial circumstances. Many people stick to a routine, where, for example, they’ll save a ton and spend the bare minimum necessary for survival.
The other extreme is overspenders. These individuals spend everything they have and don’t think far ahead.
Instead of doing either one or the other, what you should strive for is balance. If the need calls for you to spend a lot in one month, do so, but make sure you adjust accordingly later.
If you’ve used your credit card a lot recently, it’s time to hit the brakes and buy less stuff for the rest of the month.
Obviously, things get a lot more complicated than that, but the idea is to do just enough to meet your budgeting needs and account for changes in spending when they come up.
3. No Emergency Fund:
An emergency fund is when you set aside enough money to help you cover sudden expenses. This can be anything from surprise medical bills to having your car repaired after it got hit.
In general, your emergency fund should have enough money in it to last you 3 to 6 months, or more if your income allows it.
Failure to maintain an emergency fund leaves you open to falling into debt, which means your budget will take an even bigger hit.
You should plan ahead for the amount you want to put into your emergency fund every month. As with every idea discussed here, consistency is king. Make it a goal to put aside enough money each month so you can at least cover your dentist’s appointments as a start.
4. Budgeting Feels Like A Chore:
It shouldn’t. Budgeting should be fun for you and your partner, if you live together. The idea that you need to budget all the time and deprive yourself of luxury spending is a false one, and a lot of people fall for it.
You need to enjoy the process. This means you should spend enough to not feel deprived while staying responsible and living with some money in your pocket.
Budgeting like a mad person will have you letting loose at some point in time and losing it all to make up for all the things you always wanted to buy. Do NOT do it!
We discussed how long-term planning wins here, and as boring as it sounds, budgeting over many months will leave you in a better position than doing it all at once.
5. Consumerism:
This one is more of a cultural phenomenon, or a societal expectation, if you will. Consumerism is all around us.
We’re literally bombarded with ads, TV shows, marketing schemes, and salesy pep talks designed to have you spend, spend, and spend some more.
You should change that mindset if it’s stopping you from budgeting. Eating out is a non-essential activity that can burn away your budget. Cooking, on the other hand, is something everyone should do, and it doesn’t cost as much as fast food.
This idea of differentiating between essentials and non-essentials should become crystal clear as you set out to achieve your budgeting goals.
6. Budget Conflicts:
Budget conflicts happen between two people living together or between a whole family. If all of you are spending money from the same source, you might run into problems when deciding on what can make everyone happy.
If you and your spouse are spending money without taking into account the financial needs of each other, chances are you’ll destroy your budget and end up hating each other.
Budget conflicts are best resolved by working together as a team. You should only buy things you agree on and avoid hiding financial details from each other.
7. No Financial Literacy:
Again, we can blame culture and society for this one, but it’s always better to take responsibility and change things.
Growing up, many people don’t have access to resources that can help them better understand how the economy works.
In fact, a lot of people go through half of their adulthood without ever hearing of the term “budgeting.” You can guess how bad that is for someone looking to have more control over their finances.
The antidote is to educate yourself as much as possible. Learn how banks, credit cards, loans, debt, and mortgages work. These will set you on the right path to start sorting out your budget at your own pace.
8. Not Following The 70% Budget Rule:
Adding on to the idea of financial literacy, many people can make immediate changes to their budget by reading about and following what’s known as the 70% budget rule.
It’s one of those tried-and-true rules that seems to work forever. Basically, you start by taking your monthly income and doing the following:
- Set aside 70% of it for monthly expenses - the core essentials.
- Leave 20% for savings.
- The remaining 10% goes into either your retirement/pension, college expenses, or investment purposes.
There you have it! The rule works like a charm because it’s so simple to apply.
9. Going Into Debt:
We touched on this briefly, but it deserves a place of its own. Debt is a nightmare for your budgeting goals.
It’s easy to see why. You always have the option of going into your local bank, signing off a few papers, and borrowing money to buy that car you’ve always wanted. Then, you simply keep paying off that debt over the course of a decade.
What many people fail to account for here is the fact that debt piles up VERY quickly, and if you don’t keep track of it, you’re doomed for life.
With a budget in place, you have a tool that helps you stay OUT of debt. This is because a budget makes it easy to set down offers to pay back your creditors over a realistic period of time.
Again, don’t overspend, and you’ll never go into debt.
10. Not Knowing The Difference Between Savings & Budget:
While both might seem similar, and they are in a sense because you are trying to lower expenses and leave extra money aside, they are still different.
A budget is (or should be) an exact estimate of your revenue and daily expenses tracked over a certain period of time.
Savings are what’s left of your money after your daily expenses. Savings also require you to plan for them over a period of time.
Your budget has a direct impact on your savings. When you do away with unneeded expenses and become more mindful of your spending, you create a better opportunity to grow your savings.
Two birds with one stone!
In Conclusion:
Budgeting can be one of the most challenging yet useful habits you can implement in your life. Many barriers exist that stop people from budgeting properly. They can be either economic or social in nature.
This article has gone over 10 common mistakes people make when deciding to budget. These mistakes can all be avoided by following common sense, educating yourself about finances, and setting long-term goals of cutting down on expenses and building up your savings.