This is a sponsored guest post.
Like any other life skill, budgeting requires practice, and making mistakes is part of the learning process. In order to improve, however, it is crucial to reflect on mistakes, and make plans to avoid them in the future. This way, slowly but surely, you can master the art of budgeting and it’ll become a simple, non-stressful exercise. Here are five mistakes people often make when it comes to budgeting. Keeping them in mind when creating your own budget will help you steer clear of hazards and stay on safe financial ground:
1. Not Preparing For Emergencies
No-one can predict exactly what the coming month or year will bring. Even if it’s not an emergency, unexpected expenses will always arise, from doctor’s bills to parking tickets and everything in between. When faced with these emergency expenses, people often feel out of their depth and the budget can get completely derailed. A helpful idea is to take out a small cash loan to cover unexpected bills. There are low-interest options that allow you to stay on track with your monthly budget and pay the loan back when you are able. The best thing, however, is to preempt such circumstances. Create an emergency expense account and allocate a slice of your monthly income toward it. This way, the funds will be waiting when you need them.
2. Not Being Realistic
Setting financial goals is the responsible thing to do. However, being unrealistic about your monthly expenses is not. In fact, it is almost guaranteed to backfire. When setting your monthly budget, be honest and realistic about your leisure needs. Don’t pretend you can do without your weekly date night or monthly massage. Not leaving any funds for these activities applies unnecessary stress and is often the cause of people ditching their budgets. It’s better to put fewer dollars a month toward savings than to create an overly-restrictive budget on which you will inevitably cheat.
3. Putting All Funds In One Bucket
Many people assume that once they’ve made a monthly budget, they’re good to go. However, this spreadsheet is only the framework. How you allocate the money is what ultimately counts. A great way to make sure you spend responsibly is by splitting the various categories of spending into different accounts. Having all your spending funds for the month in a single location makes it extremely difficult to track whether you are keeping in line with your budget. However, if you have one account which holds your household-needs-funds and another account that holds your splurge-funds, this will help you track each aspect of your spending and remain accountable.
4. Not Reviewing Your Budget
Another mistake people make is not consistently reviewing their monthly budget. It is crucial to dedicate time at the end of each month to review, even if you’re doing well. Looking through your outgoings over the past month will often give you insight into ways you can consolidate your expenses and potentially save even more.
5. Treating All Months Equally
Although many of our regular bills don’t change much from month to month, our lifestyles do, and this directly affects your budgeting. Summer vacations, birthday parties and anniversary celebrations only happen a couple of times a year, but they cost money and need to be accounted for. Don’t think each month will cost you the same amount. Before each new period, calculate the special costs of the coming month and budget accordingly.
Many people budget, but only a few do it right. Be one of those fortunate few who gets it right the first time around. Be responsible and realistic, and always look for ways to improve.