What would you do if your budget doesn't work? Give up on it, maybe? If your budget isn't working, you are most likely making a mistake somewhere without realizing it. Financial gurus from mymoneykarma are here to enlighten you and acquaint you with a few typical budgeting mistakes.
Don't worry; we also have the solutions to those. Read on to understand your mistakes and misconceptions and learn how you can control your finances like a pro.
Mistake #1: Unrealistic Assumptions
When you create a budget, you need to categorize your expenses and assign a limit to each category. You need time and experience to allocate money appropriately to various expenses. A common mistake is to assume a particular expenditure without checking if the allocation is practical or logical.
If you decide out of the blue that you will spend Rs.5000 on food and end up spending over Rs.8000, your budget will not make sense, right?
Solution? Well, assumptions can go haywire and upset your budget. You should carefully track your expenses for a couple of months to get an idea of your average expenditure in each expense category. The average figure would be a reasonable allocation, to begin with.
Mistake #2: Money Mismanagement
Let's assume that you get paid monthly and you entirely depend upon that money to pay your bills. What if most of your bills are due on the 2nd of each month and your salary is delayed by two days? Failing to pay your bills on time can lead to a messy financial situation. This could be a major setback for freshers who are starting out their careers without much savings as a backup.
Solution? Try saving up a month's income before you implement your budgeting system. Use the saved-up amount to deal with the current expenses and save the current month's salary for next month. In this way, your pocket will never be empty.
Mistake #3: Not Tracking Your Expenses
Meticulously tracking your monthly expenses is no doubt a tiring job, and it's a common tendency to lose interest after a while. However, the basic purpose of a budget is to keep an eye on what you are spending in each category of expenditure every month while ensuring that you do not exceed the preset limit. If you do not track your expenses, you cannot possibly know when you have reached your limit.
Solution? Well, first you need to pick the budgeting system that suits you well. After that, you must find a convenient method of tracking your expenses. A lot of useful money management tools are available on the internet these days, just choose the one you like the best.
Mistake #4: Being Forgetful
I am a forgetful person. A few years ago, during my initial budgeting days, much to my horror, I had forgotten to allocate an expense for my Mom's birthday gift. I had earlier promised her that I would give her a Washing machine, which obviously did not come cheap.
I bought the gift at the last moment and spent a handsome amount that I hadn't anticipated. My budget got completely messed up. Just like me, a lot of people often forget to add a couple of expenses to their budgets. An unplanned financial burden can hit you very hard.
Solution? Rack your brains while creating your budget. A haircut, a gift, a dental checkup, an annual bill, a much-desired purchase - remember everything that you might spend on and include them in your list of expenses. Make a separate section on your budget as a buffer for unexpected expenses. It might be difficult initially and you might forget a few things, but you will surely get the hang of it once you focus on budgeting for a few months.
Mistake #5: Couple Trouble
Married couples need to work on their budget together as a team. A family budget demands commitment and communication. While your needs and savings might be unified, your wants might differ. If you fail to work together towards common as well as respective financial goals, your budget will inevitably suffer.
Solution? Make peace and work as a team. Communicate your priorities clearly to one another and create a budget where both are satisfied.
Mistake #6: Lack of Emergency Fund
Your emergency fund serves as a financial cushion for times of crisis. Be it an unexpected medical situation or a car repair - the emergency funds rescue you when you are hit by a sudden expensive blow.
Solution? Revise your budget and be realistic this time. Allocate a part of your income towards your emergency fund. Make it your priority.
Mistake #7: No Funds for Fun
When you are on a budget, you might tend to underestimate your need to loosen up a little at times and decide to scrimp by cutting down the expenses for your 'wants.' Try not to make this common budgeting mistake. A bit of fun and entertainment can keep you cheerful during tough financial times. The lack of entertainment might be frustrating enough to crack you up and push you into overspending.
Solution? Plan your wants and fit them into your budget. Just make sure that you stick to it.
Mistake #8: Confusing 'Wants' with 'Needs'
We often fail to distinguish between wants and needs. Sometimes we also consider the two in the same category. This will make it harder for your budget to succeed.
Solution? The food you eat every day is your 'need', dining out at a restaurant is your 'want.' The faster you understand to distinguish between the two, the better it is for your budget.
Mistake #9: Assuming Your Monthly Bills are Constant
Most of us take our monthly bills for granted and continue paying the same amount year after year. Also, some of our monthly bills vary from month to month, depending upon the usage. A common budgeting mistake is to miss keeping enough space in your budget to accommodate these floating costs.
Solution? Well, look for better packages for your phone, internet or cable connection. It isn't mandatory to continue with the same plan year after year. Always be on the lookout for better deals. As for your gas, phone or electricity bills that generally fluctuate: take into account the average costs while making your budget.
Well, let's sum up with Mistake#10: not having a budget. This is perhaps the biggest mistake.
A man without a budget is like a ship without a rudder - always in the danger of getting lost amidst a financial crisis. The solution would be to buck up and start working on your finances.