If you’ve ever blown your budget in the past, you may find yourself thinking that budgeting is no longer for you. There are certainly common budgeting mistakes that can impact your personal financial progress, absolutely sure. But most have much easier solutions than you think. If you’re not motivated, know you’re much less likely to adhere to a budget when you don’t have clearly outlined goals. And if you’re not using a plan, you may find that things are much more difficult to stay on track with.
But there’s a good solution to avoiding some of the most common budgeting mistakes. It’s called expense review. The best way to approach expense review is to use it as an opportunity to make changes. As I’ve often said, if you can’t see more of what’s going out, you’re going to have a harder time covering it all. Expense review is the best tool for making sure your household budget is allocating money for its intended purposes.
But let’s use this as a broad overview instead of getting into the specific details. In the first place, let’s agree that the primary purpose of budgeting is to control spending. So any time you find yourself in a spending hole, you should take a close look at your budget. Do you really need that cupcake you ordered from your favorite bakery? Is that really necessary holiday decorations? Maybe it’s time to review your spending habits.
One of the most common budgeting mistakes people make is to spend more on “luxuries” than they earn. We could do without a few $1 shoes here and there, but what we really need to be concerned about are the basics: a home to live in, food to eat, transportation to work, etc. Most families fall short when it comes to these essentials. And when families get caught up in holiday spending, things go out of control. Here’s a simple budgeting tip: When you are buying something you need or want, ask yourself how much you can afford to pay for it.
Another very common budgeting mistake people make is to not set aside a portion of their income for unexpected expenses. If you don’t set aside a certain percentage of your take-home pay every month for unexpected expenses such as repairs or college tuition, then you’ll have to come up with the extra money to pay for those expenses. And since you know you probably won’t be able to save that amount, that extra money will have to come from somewhere else. This is where debt begins its journey toward ruining your financial outlook.
One of the most common budgeting mistakes people make is not setting aside a reasonable portion of their income for investments. Investments like bonds and CDs are good investments; they give you a little bit of security each month and a little bit of interest each year. But those types of investments take a big chunk of your income, and that money has to come from somewhere.
One of the other most common budgeting mistakes people make is to not set aside an emergency fund. An emergency fund is simply a savings plan for unforeseen expenses or emergency situations, like car trouble or medical bills. And while many people know this, they don’t put it into practice. You might be surprised at how much money you can actually save by simply setting up a savings account and making use of it for the unexpected.
These are three of the biggest and most common budgeting mistakes people make. We all make these mistakes from time to time, but if we don’t set these funds aside and invest them in something that will give us some security and a little money each month, then we could find ourselves in a terrible financial situation down the road. And that’s not what we want to see happen. So make sure you avoid these three financial mistakes when you go about creating your personal financial future.