Budgets are the cornerstone of a strong financial life, but only if they actually work. You’ve probably worked at setting a budget but have found yourself struggling to stick to your budget. Or you’ve gotten to the end of the month and wondered what happened to all your money.
1. Not Having a Purpose for Your Budget
If you don’t have a reason for budgeting, you will likely never stick to your budget. You must have a clear goal set, to help you set the direction of your budget. Once you know why you are budgeting, you’ll be more motivated to keep up with your budget.
2. Not Budgeting for Your Future
If you do not budget for your future, you won’t have money for your future. No one wants to work until they die. Don’t skip saving for retirement, make sure it is part of your budget. Every little bit will add up over the many years of saving ahead of you.
3. Relying on Money That Isn’t in The Bank
If you start budgeting bonuses, or tax returns, or sales commissions that you haven’t actually received yet, then you are setting yourself up for failure. Just like you don’t count your chickens until they hatch, don’t count on money until it’s in the bank.
4. Not Budgeting to Save
Retirement shouldn’t be the only thing you budget to save for; an emergency fund should also be considered. Life happens, and the only way to be financially prepared for it is by saving. An emergency fund can cover all sorts of unexpected expenses. Also, making a habit to put money into an emergency fund will not only help you cover unexpected expenses but also to build up your savings again after you’ve had to use your emergency fund.
5. Forgetting the Small Stuff
The coffee out, or a few songs a week from the iTunes store, or the odd after work drink can add up. While you may not want to budget $10 a week to spend on music, and $15 to spend on coffee, you can budget a slush fund to cover these expenses. For example, budget $100 a month for the little things. Though before you set a number, it would be best to review your spending and see how much you you spend on the little things, then use that number in your budget.
6. Making Things Too Hard
Having too many budget categories, or changing everything in your budget every month, makes it hard to keep up and remember what you’re allowed to spend and where. The simpler your budget, the easier it is to stick to your budget.
Check out the Lazy Person’s Guide To Budgeting.
7. Not Building in Flexibility
Along with a slush fund to cover the little expenses that add up, it’s a good idea to have a buffer in your account. You may be hit with an automatic charge you forgot about or just an unexpected expense. A buffer is important because not all unexpected expenses are emergencies. Expenses will also fluctuate, for example, the cost of utilities will usually vary by season, and you may have more expenses overall when the holidays roll around. Make sure you build a budget that is flexible.
8. Not Adjusting and Reevaluating
Just as you need a flexible budget, you need to make sure you track your spending and adjust your budget to be more in line with your realistic spending. You may also discover that your goals change or shift, so your budget no longer aligns with your new goal, take the time to adjust and reevaluate regularly.
Don’t make budgeting harder than it has to be. Avoid these mistakes, and you will be well on your way to a successful budget. And the sooner you can budget successfully, to sooner you will reach your financial goals.