Budgeting…I’m sure we would rather live our lives without having to worry about it. I know this because budgeting is restrictive and nobody likes to feel restricted. Unfortunately, until you acquire a certain level of wealth, you still need a budget 😆. Another reason why people dislike the idea of budgeting is that they tried in the past and failed. If you fall into this category, I’d like to encourage you to give it another try. However, this time around you need to avoid certain mistakes in order to achieve success. Here are a few of such mistakes.
- Not having a budget: Of course, having no budget at all is the number one mistake. You cannot be serious about your finances without having a budget. Whether the plan is to achieve financial freedom or simply to get your finances on track, you definitely need a budget.
- Not properly capturing your income and expenses: If you don’t capture your income and expenses accurately, you will end up with an inaccurate budget which will affect your finances. Don’t forget to add income from irregular sources like gifts and capture semi-regular expenses like insurance payments.
- No plan for emergencies: Whether we like it or not, emergencies do happen and can throw you off the balance if you’re not prepared for them. It is best practice to allocate some of your income towards your emergency fund. Ideally, your emergency fund should be at least 3 times your monthly income.
- Cutting out all fun expenses: It is self-sabotaging to make a budget without any allocation for fun. If you don’t spend a portion of your money on something you love, you’re likely to get frustrated and end up mismanaging your finances in the long run.
- Not reviewing your budget regularly: Your income and expenses change regularly so why should your budget remain the same? Your budget should be reviewed and updated on a regular basis to accommodate changes to your lifestyle.
- Not using tools: Budgeting shouldn’t be difficult, when in fact there are many tools that make the process very easy. Some budgeting apps even have the option of linking to your account to get the most accurate information.
- Not getting good bargains: One of the major goals of budgeting is cutting unnecessary costs. You can further achieve that by always negotiating a lower cost or sourcing for a cheaper alternative, especially on recurring expenses.
- Concentrating only on saving: It is clear that budgeting is mainly about saving money by cutting out some unnecessary costs. However, too much cost-cutting can drastically reduce your quality of life and make it less enjoyable. A recommended alternative is increasing your income by having a side hustle.
- Using estimates: Creating a budget using estimates is basically setting yourself up for failure. You will either end up overbudgeting or underbudgeting which defeats the purpose.
- Classifying wants as needs: When trying to save costs, you’re expected to prioritize your needs while cutting down or totally eliminating your wants. This cannot be done effectively if you do not properly classify your wants and needs.
Now that you know the common mistakes to avoid, it’s time to consider giving budgeting another try. Your finances will be better for it.