On the road to financial literacy, developing a budget is imperative, but having a budget won’t automatically solve your money problems. Budgets take time and effort, and dogged determination to stick to your plan.
If you’re ready to start budgeting, keep the following common budgeting blunders in mind. Avoiding these mistakes means you’ll hit fewer obstacles on the way to achieving your goals.
1) Pulling your budget out of thin air
It’s going to be difficult to stick to a budget that was based on wild guesses and not facts. When you’re initially setting your budget, take some time to do a little research to ensure that your allocations are realistic and attainable.
Start by tracking your expenses for a month. The following month, sit down and add everything up so you can see how much you’re actually spending in various categories. Use these figures as a starting point; for instance, you might be able to make some major cuts in certain categories (like buying clothes or eating out), whereas other expenses might be more fixed (such as internet bills or student loan payments).
2) Neglecting to leave wiggle room
If you’ve budgeted every last penny of your income without leaving room for unexpected expenses, you’re painting yourself into a corner. Surprises happen more often than you’d think: car repairs, appliances breaking down, a hostess gift for a last-minute invite, etc. If you don’t budget for these expenses, you’re going to have to take that money from somewhere else, or you risk going over your budget.
The solution: Expect the unexpected, and incorporate a contingency into your budget. At the very worst, you’ll end up with a few extra unspent dollars that you can transfer to your savings.
3) Forgetting to keep track
Your budget is utterly useless if you don’t take the time to properly track and record your expenses. It’s great if you’ve budgeted $400 for a month’s worth of groceries, but what good is it if you have no idea how much you’ve actually spent?
Make a habit of collecting receipts for everything you purchase. Don’t forget to account for items you buy online and bills that are paid through automatic withdrawals from your bank account. Having a pile of receipts isn’t enough; you also have to record them in your budgeting system so that you know exactly what you’re spending and where each cent is going.
4) Spending without saving
Your budget should plan out all of your expenses, but don’t forget to include your saving goals, too. Savings are like personal expenses that you pay to yourself, and they’re important for achieving long-term financial goals. Include a savings category in your budget, just as you’d budget for housing expenses or vehicle costs.
5) Not revising your budget
A budget is not static, it’s dynamic. Ideally, it should be revised each and every month to reflect changes that are happening in real time. If you get a raise at work, your budget should reflect this, and if you move to a new area where groceries are cheaper, it’s time to update your budget.
Your budget should reflect seasonal fluctuations, too. Maybe you’re putting some extra money aside in the quiet early spring months to save up for next December’s holiday expenses, or perhaps you know you’ll be spending extra money on food when you’re on a two-week-long road trip in August. Your monthly budget doesn’t have to be identical every month; just make sure that you balance out months where you spend more by designating months where you save more.
6) Not sweating the small stuff
That morning coffee or mid-afternoon vending machine purchase may seem inconsequential, but every penny counts. Your budget should account for every dollar you spend, even the seemingly miniscule purchases that only cost you a few bucks. Over the course of a month, a dollar here and a dollar there really add up. You may be surprised at how much you’re actually spending on little things, so be honest with yourself and include every expense in your budget, no matter how small.
7) Spending spontaneously
Creating a budget is a good place to start, but sticking to your budget is what really matters. Unless you’ve specifically created a category for impromptu expenses, your budget probably doesn’t account for spur-of-the-moment purchases, whether that means picking up a few candy bars at the grocery store or saying yes to a last-minute weekend getaway.
Saying yes to your budget sometimes requires saying no to fun opportunities, but the short-term tradeoffs will yield long-term gains, we promise. And believe us when we say it feels amazing to spend your money on an expense you’ve thoroughly considered, worked hard to save for, and undoubtedly deserve.
Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: Any outbound links in this post will take you away from Simple.com, to external sites in the wilds of the internet; neither Simple nor our partner banks, The Bancorp Bank and BBVA Compass, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.