30 Mar 7 Commons Mistakes That Will Blow Your Budget
7 Commons Mistakes That Will Blow Your Budget
- Failing to account for large, one-time expenses.
- Forgetting to adjust your budget from season to season.
- Not having a fully funded Emergency Savings Fund of at least $1,000.
- Not understanding the true cost of items across your budget.
- Failing to accurately track monthly expenses.
- Ignoring the need to adjust budget items when costs change.
- Ignoring forgotten items like recurring subscriptions and failing to account for small dollar transactions.
Creating and following a budget might be one of your least favorite financial activities, but it is perhaps the most important exercises you can follow to build wealth. When used effectively, a budget serves as a guide for spending decisions. Following a budget will give you more control over spending and provide a clear view of where your income goes.
Unfortunately, not all budgeting practices produce powerful results. Skip the frustration of budget fails by avoiding the most common budget-busting mistakes.
Fail to include one-time or intermittent expenses. Each month includes a slightly different set of expenses. For example, one month you might have a birthday party to plan and another a vacation. Holidays, travel, and special events require financial planning. Other intermediate expenses might include vehicle registration, property taxes, and insurance payments.
As you create your annual budget, account for these intermittent or one-time expenses.
Don’t make seasonal adjustments to your budget. In addition to one-time or irregular expenses, you also have fluctuating costs based on the season. Winter and summer often require higher payments to heat and cool your home. You might also have higher entertainment costs in colder months due to the limited access to outdoor activities.
When reviewing monthly costs, adjust the budget to match actual expenses with the weather and the season in mind. Bank and credit card statements can help determine your actual costs for any given month.
Leaving no contingency funds. Unexpected expenses occur with a high level of regularity. Fluctuating gas prices, changes in weather, and an unforeseen car or home repair can add unplanned expenses to the monthly budget. Include a line item for miscellaneous costs not specifically assigned to an expense. Above all, if you haven’t set aside at least $1,000 in an emergency fund, setup a separate savings account and start saving for the inevitable.
Having unrealistic cost estimates. Guessing for each category without any historical evidence does not create a practical budget. The more accurate you can predict your spending needs, the more useful the budget becomes.
Start with a guesstimate and then fine-tune the numbers to reflect actual spending.
Failing to keep track of expenses. Taking the time to create a budget and then failing to follow through is not beneficial. A budget must serve as a spending guide. It can help you identify areas to reduce costs and help you make sound financial decisions.
Not revising the budget as you go. Every budget has both fixed and variable expenses. The mortgage, car payment, and phone bills are typically the same. Whereas food, gas, power, and entertainment change from month to month. One of the most common budget items where people get off track and bust their budget are grocery expenses. Variable holiday expenses on food and beverages are just one way are just one way people make costly mistakes at the grocery store that can blow a budget.
Like life, your budget should remain fluid. When the cost of food or gas changes weekly, you must adjust the budget to reflect those cost differences. If you have an upcoming trip, you forgot to include, add it now and find ways to cut back in other areas to avoid debt.
Forgetting to pay attention to the little expenses. Forgotten expenses like subscriptions and small dollar transactions can add up quickly. Your daily coffee, paper, or lunch purchase can add up to hundreds of dollars a month. These expenses often provide little value while quietly growing into a mountain of high interest credit card debt.
One of the primary benefits of a budget is the heightened awareness of spending patterns. Use this guide to eliminate small meaningless expenses and transform your savings into opportunities to invest more or pay down debt.
Your budget should provide a template for spending that you can use to develop better financial habits. When you control spending, you can reduce debt and build wealth faster, giving you the financial security you seek.
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