We often make these common pitfalls of budgeting. But let me ask, Are you budgeting right? Do you have a clear idea of your financial pathway? In this blog post, we will assess the common areas we make a lot of mistakes in our budgeting.
Your finances are very daring to you, so you need to be guided on how you spend them. Budgeting helps you guide and control how you spend each dollar.
It is therefore paramount for you to have a fully detailed budget written down and you devoted to it. With the well written down budget, you can now know how much goes for feeding, saving, emergencies, miscellaneous, and plans for retirement.
However, you may leave out vital components of a good budget, and that becomes an obstacle instantly. And yes, it can cause you to make grievous mistakes.
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This article would help you figure out some of those budgeting mistakes you might encounter and also show you how to void them.
Once you have been fortified with potent financial knowledge, you can then know how to plan your finances. So let’s look at the common pitfalls of budgeting that should be entirely avoided to make the best of your personal finances.
Common pitfalls of budgeting that ruin our finances
1. Not Having A Budget Plan
Do you have plans for a lot of things in your life such as going through your social media, watching TV and movies, going out for exercises, and a lot more but without a budget?
Sure, making a budget might seem very scary and pain-staking. But it is necessary you make out some time to write your budget plan.
No matter how stressful it might seem for you to write a budget, you may through more severe pain, if you finally become financially handicapped.
So, you have to make a lot of sacrifices for those things which are dear to you in other for you to establish a more stable financial lifestyle. You have to be guided and give your budget quality time.
2. Neglecting Savings For Emergencies
In this life, there are things you do not plan for, and they are unavoidable. Such things would warrant you to spend money.
Therefore, if you have been budgeting for only your monthly expenditures, then you must have a rethink. As you make your monthly plans, you do not know what nature or life has in store for you. So, every good budget plan must carry emergency savings.
If you belong to the group of the 39% of Americans that do not have at least a $400 in their accounts that is set aside for any emergency, then your general savings would be under serious pressure any time an emergency situation that requires finances emerges.
This is one of the most common pitfalls of budgeting pitfall. Therefore, you have to make building your emergency savings a priority. Some experts advise an emergency fund of six months of what you earn, though you can start gradually to begin saving. You can start with little amounts that can be achieved initially, then after that, you can increase your emergency budget. Immediately you achieve your emergency saving target, set a new one at once.
Ensure you have the best savings account that offers you the great returns on your emergency savings. In that way, you make your self happier and motivated to even save more for emergencies.
3. Omission Of Fun
You might decide to save money by living a very frugal and solitude kind of life, but it would only take time for your budget to fail because you might not be able to sustain such kind of lifestyle for so long.
So, not including fun into your budget can become a severe mistake. It is good to pay off your debts, loans, and credit cards very fast, but you also deserve to have fun and enjoy the world out of your budget.
Budgeting actually helps you to be in control of your finances and to regulate how you spend money on things that are actually meaningful to you. It makes you leave the life you wish for, so cutting out the fun from life would not be nice.
A nice way to avoid not making this budgeting mistake is for you to incorporate some true fun into your budget. Let “fun” be an item on its own on your budget list, like how much you would want to spend in going to the movies with families and friends, or how much you want to spend on a jolly trip with families and friends, or whatsoever gives you fun and how much you intend spending on it.
Some experts advise that you spend between 5% and 10% of what you earn for fun. Though you can start small and improve on it or you can also be a bit flexible with it, but always endeavor to always have a budget for fun and maintain a good balance between financial responsibility and fulfilling life.
4. Not Rechecking Your Budget
As you start budgeting properly, you will notice that things would start going well with your financial life. You will have money for emergency situations, you will be having money to catch your fun, and you will be feeling satisfied and fulfilled with yourself.
But, even as things are going well with your finances, do not be too comfortable with the old budget that you have, always try to visit it and make the necessary upgrades.
You can avoid making such budgeting mistakes by setting calendar reminders to update your budget. It is advisable for you to recheck your budget every month or anytime you encounter life changes, such as you getting promoted, you moved into a new apartment, you made a sudden and huge expense, you did not spend much for a month, and many more. You need to regularly recheck your budget in other to keep your financial life healthy.
5. Relying On Pay Check To Pay Check
You should not be among the group of US citizens that have less than 5% of their income as their household personal savings. So many people live a paycheck to paycheck lifestyle and if you are part of that category, you have to realize that in life so many uncertain circumstances occur. If you are not ready for those unseen issues, you will be overwhelmed by the issue when it happens.
Overspending all you earn would always keep you in a disastrous position and, anytime a paycheck is missed you would run into serious problems. If an economic recession occurs, you will be left with limited ways out.
To avoid this, experts advise that you set aside at least three months’ worth of expenditure in a special account that can be easily accessed in time of trouble. If for instance, you lost your job, that three months’ expenditure can help you manage yourself till you get another job.
6. Neglecting Retirement Savings
Doing your monthly expenses and paying off debts is good, but while doing all of that also remember that you would retire someday in the future.
Retirement savings might seem to be unnecessary to you at the moment because you feel it is a futuristic event and it has to wait while you attend to present and urgent issues around you. You are approaching your future every day and you need to have a retirement savings plan.
A good way to avoid this mistake is to take advantage of any employer-sponsored retirement plans such as 401(k), IRAs, and many others. Instead of manually, it is always better to make your retirement savings automatic, in other for you to achieve the financial goal you wished for your future.
7. Thinking Of ExpectationsThat Is Not Real
Your mind can wander so much during the making of your budget. The feeling of adding almost everything you can think about or imagine is always there, such as extra pay for your house loan, money for educational loans, money to pay up your car loan, and many others.
You have to know that, not everything that is on paper is applicable to real-life situations. So, do not ruin the progress of your budget with expectations that are not real.
A way not to fall into this budgeting mistake is for you to allocate a time every month that you will need to go through your budget and sincerely tell yourself the reasons why you did not achieve some of your financial targets.
But, if you achieved all your financial targets, also sincerely tell yourself if you are happy with yourself or you feel unsatisfied due to the fact that you were trying to stick with your budget and you missed out on some things that make you happy.
You know that a good budget is one that strikes a balance with your desired goals and the real-life that you live every day. So, a monthly reassessment of your budget can aid you to establish real targets and make your financial life progress as you keep achieving them every month.
8.Neglecting To Monitor Your Expenses
A budget is not a system that regulates itself, it needs you for it to work effectively. So, it is paramount for you to always monitor what your money buys, where it goes, and what your money does for you every month. If you do not monitor your well-calculated expenses, then even little expenses you make on petty items can even jeopardize your budget.
A cool way to avert this mistake is to begin little, by setting a less difficult target in which you can monitor your expenses for a month. The system would make you see clearly what you spend your money on in a month. Then from that point, you can make amendments. Budgeting apps can even assist you in monitoring your monthly expenses and as your monthly expenses become easier to monitor, the easier it will be for you to be successful with your budgeting lifestyle.
9. Not Remembering Your Family Or Spouse
As long as you live in a house with your spouse or partner, you both share a financial life together. The hustle and challenges of life can be so engaging that sometimes you forget to discuss a budget with your spouse or partner. If you do not make out time to regularly discuss how to accomplish your goals and budgets, it might affect your financial life and retard success.
A way to avoid this budgeting mistake is for you to make avenues and time for you to talk to your spouse or partner more regularly about finances. You could take your partner or spouse somewhere relaxed and comfortable like a quiet park or a cool restaurant where you can discuss finances. You can even discuss it at home probably on a spreadsheet in which you and your partner or spouse can monitor your expenses together. The most vital point is that you have a regular conversation about your expenses with your partner or spouse. Even though you both disagree on some points concerning your expense, do not be too rigid, a bit of compromise can be effective in causing your budget to be successful.
10. Neglecting To Budget for Wiggle Room
A successful budget requires some breathing space. If your budget lacks wiggle room, you could be unconsciously working against your budget with unsatisfied and discouraging feelings especially when certain financial challenges hit you.
To avert this budgeting mistake, you can incorporate a kind of shock-absorber into your monthly budget from the beginning, which could be about 5-10% of your total expenditures. It could happen to be that by the end of the month, you might need all the money, which is a win-win situation for you. Because you can now use the unused money to pay off debts, enhance your retirement or emergency savings, which would make your financial life more stable.
You now have a good knowledge of budgeting pitfalls and some wonderful tips on how to avoid them, so as you progress with your budget, be guided. Keep in mind that your budget is not an automated system, it needs you for it to work efficiently.
So, constantly check, monitor, adjust, and maintain your budget so that you can enjoy a healthier financial life. Cultivate the habit of saving part of your monthly income and make out time to regularly improve your financial plan.
Now you know about the common pitfalls of budgeting, let’s hear from you. What are the unique challenges you have when making your budget? Let’s talk about them in the comment section.