A lot of people are turned off by the concept of budgeting, usually because they worry they won’t be able to spend their money on anything fun ever again. Unfortunately, failing to budget properly can be financially devastating. Even if you’ve created budgets in the past, it helps to understand the mistakes many people make, so that you can get better control of your finances. Read on to learn more.
Take a look at what budget mistakes to avoid in 2019:
1. Not having one
One of the biggest financial mistakes a person can make is not having a budget. Without a budget, you’re flying blind without a clear-cut plan for your finances. This leaves you completely unprepared to manage financial crises when they occur. If you want to guarantee financial security for you and your family, following a budget is a must.
The reality is that making a few financial adjustments now will be much less painful than ending up in crippling debt later on down the line. It may seem like a major inconvenience, but being broke is even more problematic. Part of the issue for people is that budgeting typically means sacrificing the things you love and living at or below your means. While this idea is uncomfortable for some, the rewards will be totally worth it.
2. Overcomplicating things
There’s no need to reinvent the wheel! With the convenience of today’s technology, there are countless ways to make budgeting simple. If you’re in need of a free budget template, check these out:
- com is a popular option that provides a basic budgeting template. You will, however, need to add in the categories.
- If you looking for a more robust option, try out this template from Money Under 30
You can also manage your budget in just a few clicks using the following mobile applications:
- PocketGuard links directly to all of your financial accounts, allowing you to see a clear snapshot of your overall financial health. The app also analyzes your monthly bills and searches for ways you could potentially save and find better deals. This could put hundreds of dollars back in your pocket on things like phone bills, cable, and internet services.
- You Need a Budget (YNAB) is well-liked among young professionals. The popularity of the app is due in part to its unique approach to money management. YNAB assigns every dollar of your income to a specific category; every cent has a purpose. This method keeps users from overspending, making it easier to pay down debts. The app also offers free online classes to users that are focused on money management and goal-tracking.
- Wally is a completely free app that focuses solely on budgeting. The app also sends you alerts to remind you when your bills are due or when you’ve reached a milestone like a specific savings goal.
- Simple is both a budgeting app and bank account. It’s Safe-to-Spend feature lets you know whether or not your budget is on track and if it’s ok to make another purchase. Income and expenses are tracked automatically, making budget management hassle-free.
3. Guessing – instead of tracking – your expenses
Each dollar you spend should be properly accounted for. However, many times we tend to believe that a rough estimate of our budget is sufficient — it’s not! We say things like, “I spend about this much on food each week” or “My electric bill should be about this amount.” The issue is that these estimates can be wrong, leaving you hundreds of dollars off from your expected expenses. This can result in you living paycheck to paycheck each month.
4. Overlooking seasonal fluctuations
When building your budget, you need also to account for less frequent expenses, not just your monthly bills. These items can add up quickly, leaving you in a budget crunch. Some charges you’ll want to consider include:
- Holidays and gifts
- Membership fees
- Charitable giving
- Streaming services
- Quarterly taxes
- Retirement Contributions
Calculate the monthly cost of these items by dividing those bills by 12 and saving a portion of that expense monthly.
5. Forgetting to budget for fun
You may believe that you can live without fun, but this line of thinking isn’t realistic or sustainable. Besides, the entire purpose of having a budget is to have better control of your finances so that you can spend money on the things you enjoy.
As a rule of thumb, you should budget somewhere between 5% and 10% of your income for entertainment. Of course, this may change depending on your saving goals or unexpected emergencies. However, it’s important to dedicate at least some portion of your paycheck for a little fun from time to time.
6. Going it alone
If you’re married, it’s important to work with your partner on creating a monthly budget. Both of you should be committed to having an open dialogue about your current financial status. Doing so will keep you from blowing through your cash reserves and ending up between a rock and a hard place.
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