Budgeting. A dreaded word and something we should be doing in order to get our finances under control.
With countless online tools, apps, books, and blogs on the subject, you would think it would be easy to do. However, many people fail at budgeting. There are few common budgeting mistakes. In this article, we will explore four of them and how you can overcome these mistakes.
1. Forgetting to include all of your expenses
While, this may seem obvious, almost everyone seems to forget some expenses. Perhaps the purchase is so small you forget about it or you think it does not matter. Purchasing one iTunes song for 99 cents won’t make a dent in your budget. But buying ten or more can. Or perhaps you forget about the Microsoft 365 monthly fee for $9.99 that is automatically charged to your credit card.
A few other examples of frequently omitted expenses:
- Cash and ATM related expenses. Even if you do not keep track of where you are spending the cash, include the total amounts you withdraw every month.
- Bank overdraft fees. These can add up to hundreds of dollars.
- Quarterly payments – i.e. water bills, real estate taxes if it is not included in your mortgage payment, estimated income taxes, if you are self-employed.
- Infrequent expenses – i.e. summer camp for your children, school tuition, repayment of personal loan from a friend, EZ-pass replenishment charges.
- Yearly amounts – i.e. credit card yearly fees.
- Automatic charges to your credit card and or charges directly removed from your bank account.
2. Remembering to include extras
Do you have a hobby that you enjoy? Not all hobbies are expensive. However, even buying one book every month needs to be included.
You may meet your friends for drinks after work on occasion. Or buy lunch during the work week.
3. Omitting funds for future purchases
Future purchases can mean buying something next week or ten years from now. It should include setting aside funds for large household purchases like a new refrigerator. It should also include next year’s vacation and your retirement savings.
4. Giving up after the numbers do not seem to make sense
After you have accounted for all of your spending and deduct it from your earnings, the bottom line may be a negative number. You may think you have done something wrong. It means that you are spending more than you are earning. You should look at each of your expense items and decide whether to cut spending or not. Some find this step too difficult and will seek professional help, such as financial counselor or money coach.
Preparing a budget is the one true way of understanding where your money is being spent. Once you have all the information then you decide what adjustments you need to make in order to improve your finances.
Have you tried budgeting and failed? What lessons did you learn when preparing your budget?