7 Common Budget Mistakes and How to Fix Them
2020 has been the year of the budget for me. I started budgeting in January and have been dedicated to it ever since. It’s now become one of my favorite things and through budgeting, I’ve discovered my love for personal finance and helping others towards financial freedom.
One of the best things about budgeting is that there’s no right or wrong way of doing it. Budgeting is a fluid activity. As you try things out and learn new things, your budget will change and adapt along with it. But, there are a few budget mistakes that you can easily slip into, if not careful.
So today I’m going to discuss the 7 biggest budget mistakes you might be making and how you can fix them.
#1: Not making your budget realistic enough
This usually happens to people who are just starting out with budgeting. They’re super excited to start achieving their goals, that they create a “bare-bones” budget that leaves little to no room for fun. Then after a few months, they’re bored and drained and end up spending a large amount of money when you could’ve factored a small amount of money for fun each month.
Solution: Factor in a small percentage of money for yourself (5-7%) so you can still enjoy life while also budgeting.
#2: Forgetting irregular expenses
We’ve all been there, you’re looking at your monthly expenses and see that your Amazon Prime came out of your account this month, throwing off your budget. Depending on how many irregular expenses you have, this scenario can really hinder your progress towards your goals because you’re constantly playing catch up.
Solution: Make a list of all your irregular expenses (Amazon Prime, domain renewal, software, etc.) and then take a look at your bank and credit card statements. Note when those expenses come out each year and then plan for them moving forward.
#3: Not tracking your expenses
This mistake can easily slip through the cracks. Most people just create a budget based on arbitrary numbers. They focus on what others are doing rather than personalizing their budget to their specific life. If you don’t track your expenses before creating your budget, your setting yourself up for failure because your budget is not rooted in your personal data.
For example, say you budget $400 for food each month, but when you look back you realize that you normally spend around $600 for food each month and there’s not much room to cut anything out. If you were to continue to budget $400, you’d struggle to stay in budget and may become disheartened with budgeting all around. Creating a realistic budget will help you to stick to your budget long term.
Solution: Go through your bank and credit card statements and look back at the previous 3 months. Categorize all of your spending and then adjust your budget to make sure it is realistic, but don’t be afraid to make it a slight stretch for you.
#4: Not updating your budget as life changes
Budgeting is a verb so therefore your budget should change over time. When you get a new job, get a raise, move to a new city, or any other significant life change, you should be altering your budget to match that change.
Solution: Take a look at your budget after any significant life change, and make appropriate changes.
#5: Not being flexible
Flexibility within your budget looks like planning for the unexpected. This is mostly aimed towards people who do Zero Based Budgeting, which is where you give each dollar a purpose and budget down to 0 each month. Within this method, if you don’t allocate some money to unexpected things you could end up over-drafting your account.
Solution: Allocate some money to a budget category titled “Miscellaneous” or “Unbudgeted” for whatever random expense might come up over the month.
#6: Not utilizing sinking funds
Sinking funds are a way to save up for large expenses little by little each month. If you have a large purchase or bill coming up, utilizing sinking funds could be very beneficial.
Solution: Take an inventory of large purchases or bills that are coming up, take note of how far away they are, and put away money each month in preparation.
#7: Not have an emergency fund
Emergency funds are vital but sometimes people neglect to create one until they’ve achieved other financial goals such as paying off debt. But emergencies can happen at any time and it’s best to be as prepared as possible beforehand. You don’t want to encounter an emergency without the financial means to take care of it.
Solution: Put away some money each money into an emergency fund
So there you have it! The 7 budget mistakes you might be making and how to fix them. Let me know down in the comments below what you think of my tips and if you have any other ones. Thanks so much for supporting my blog!
