So, here’s the thing about budgeting.
The purpose of a budget is to help you spend within your means or if possible well below your means so you can save money. When I talk to most people about keeping a budget, their biggest struggle is sticking to it. After looking closer I realized that most people are making these five mistakes when creating a budget and that is the reason the budget doesn’t work.
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5 mistakes that will keep you from sticking to your budget
Budgeting Mistake #1- Not knowing exactly what you bring in each month.
It is always surprising to me how many people don’t actually know how much money they make each month. Take the time to calculate your monthly earnings down to the penny so you know exactly what you have to start with. This might be a monthly, bimonthly, or weekly paycheck, or any other source of consistent income you are making. Don’t include income that varies from month to month unless your main source of income varies each month. If you make extra money on the side that is not consistent, you should track this income, but not use it for your monthly budget. It is not money you can count on on a regular basis and so should not be counted on for your monthly expenses.
Budgeting Mistake #2- Not really knowing what your expenses are.
Just ballparking your expenses for the month is not good enough. When you do this, you are setting yourself up for failure. Think about it, you ballpark $350 for groceries for the month and watch your spending carefully, make sure not to buy anything extra, but come the third week of the month and you are out of money. It’s not because you weren’t careful with your spending. It’s because you just took a guess at what you would spend and you were way off. Now you throw out your budget and decide to try again next month. Just like the first mistake, it is vital that you know exactly what you need to spend every single month. Whether you have a lot of money coming in each month or just a little you should know where you are spending your money. Take the time to really calculate what your monthly expenses are. The things you have to pay each month. Needs, not wants. Hopefully these expenses come out to be less than your total income. If not, you have some changes to make until your monthly expenses come out to be less than your monthly income. You can’t spend more than you make. If you feel comfortable with the difference between your spending and your income, you can add in savings and a few of the luxuries you don’t want to live without, but only if you are already saving and can truly afford them. Otherwise make the sacrifice now and reap the benefits later. If creating a budget is new to you, I recommend you read this.
Budgeting Mistake #3- Allowing yourself certain luxuries even if they do not fit within your budget.
I touched on this a little in the previous section, but this might just be the biggest mistake people make when creating a budget. We live in this world where having more is better and companies spend millions of dollars a year to make us want what they have to sell. They do such a good job, we actually think we are depriving ourselves if we do not buy it. One thing that often derails a budget quickly is impulse buying or simply not putting it on our budget, but allowing ourselves to spend the money anyway. Make a plan for every dollar you have before you spend it and have a little willpower when it comes to making these extra purchases.
Budgeting Mistake #4- Forgetting to account for extra expenses, bills that aren’t paid monthly, and other oversights.
When you are creating a budget you have to remember to include the items you pay for quarterly, every six months, etc. The easiest way to do this is to break the payment out into monthly chunks and plan for that amount of money each month. Rather than spending the money that month you would save it. I have a few bills that are not monthly that I do this with, including, car insurance, property taxes, and trash. You could keep this money in your bank account (if you are disciplined enough not to touch it) or you can withdraw it from your account just as if you were spending it and place it in an envelope labeled for that bill and it’s due date. When it comes time to factor the bill into your budget, you will have the funds available and ready to be paid.
You may also have extra expenses that come up that you haven’t accounted for. I am not talking about huge expenses like a car breaking down or large medical bill. Hopefully you will have an emergency fund set up to handle those larger expenses. If you don’t have an emergency fund set up at this point, don’t worry. Getting a good handle on budgeting and committing to it will help you save for one. The extra expenses I am talking about are a gift that comes up, extra toilet paper or cleaning supplies you weren’t thinking about, etc. When planning out your budget, give yourself a small cushion. If you do not use it, you can just add it to your Savings at the end of the month. If you really are committed to getting a handle on your budget, don’t let this cushion become an excuse to spend it on whatever you want.
Budgeting Mistake #5- Using a credit card freely.
Many people would advise you to get rid of your credit card when you are first creating a budget and trying to save money. I believe cash is the best way to go also. However, sometimes it can be a challenge to pay cash for everything. The reason I believe cash is the best system is because it is so much easier for people to track. When you spend with a credit card, you are far more likely to spend without thinking. Where as, if you use cash, once the allotted cash is gone, it’s gone.
If you do decide to use a credit card make sure you keep track of your spending exactly as if you were paying cash. If you budget $350 for groceries and use your credit card for one of your trips, make sure you are deducting that from the total you have spent on groceries for the month. It may be helpful for you to go on your online banking and just pay the bill when the charge shows up. Another thing you can do is decide what items it is hard for you to pay for in cash and use your credit card only for those purchases. Gas is one of those items for me. I have three kids and it can be challenging to run into the gas station to pay with cash so I like to use my credit card for gas. We budget a certain amount for gas each month and spend it all on the credit card. It is easy to keep track of because we don’t have other purchases on the credit card unless they are preplanned.
It is really up to you which way you decide to go, credit card or not, but credit cards can be a major pitfall in sticking to a budget.
Download a free budgeting worksheet here and get started today! If you haven’t read Dave Ramsey’s amazing books on budgeting, I highly suggest starting with this one.