A lot of people make excuses about budgeting. They say it is too time-consuming to create. It is also something that they have to monitor constantly. Both of these are true but it does not reduce the fact that people need it in their life. Regardless of your financial situation, you will always benefit from using a budget plan. It will give your financial decisions direction and will help you avoid a lot of mistakes.
If there is a time to use a budget plan, it is now. According to a study done by PewTrusts.org, our expenses are rising faster than our income. Between 2004 to 2014, the median income fell by 13% while expenses increased by 14%. The inflation rate is rising faster than the income that consumers are receiving. How can we meet all our financial obligations if the prices of basic commodities continue to rise while our salaries remain the same or grow at a very slow rate?
This is where budgeting can prove to be very useful.
A budget plan can help you look at both your income and expenses so you know where your money is going. If it turns out that your current expenses are higher than your income, you can make the necessary changes that will help keep your expenses low. You can identify the priority expenses and let go of the unnecessary ones. That way, you can make sure that you will always live below your means.
3 mistakes that makes it hard to commit to a budget plan
Although we mentioned that budgeting is necessary, that does not mean it is easy. According to an article published on USNews.com, 3 out of 5 adults do not have a budget – or do not use one. The article hinted that this is probably because maintaining a budget is usually likened to dieting and even training for a marathon. None of them are very appealing but can provide favorable results when done properly.
The truth is, a budget can take a lot of work – especially when you are just starting. There are various strategies and choosing the right one can take a few rounds of trial and error. If you continually make mistakes, following a budget can seem frustrating and a huge waste of your time.
This is why you have to try to do your first budget correctly the first try. There is no ifs or buts – you need it in your life. Regardless of how you approach it, is really very helpful. You just have to make sure that you do it correctly.
To help you implement budgeting properly, here are three mistakes that you need to watch out for while creating your budget plan.
Guessing your expenses.
First of all, it is always easier to start with the facts. This is why the initial task when creating a budget plan is to list all your expenses for one month. You have to detail every little expense so you can document where your money really goes. This will be the basis for the budget plan that you will create. Once you have listed all the expenses, you can see the areas that you need to keep on funding and those that has to stop. Sometimes, the little expenses that we make every day goes unnoticed but when you add it all up, it becomes quite expensive. If you base your budget plan on assumptions, you might end up allocating too little or too much in certain categories. When you overspend on certain categories, or you fall short in others, that will make you feel like your budget is not working. But the truth is, you simply placed the wrong amount because you just guessed the allocation for each spending category.
Making it complicated.
Another mistake that can make budgeting hard to commit too is by making it complicated. Admittedly, there are budget plans that are tedious to maintain and not to mention detailed. It will take an effort to monitor and follow. However, there are also ways to make budgeting simple and in effect, your overall financial life. For instance, the envelope method involves identifying major spending categories and allocating individual envelopes for each of them. You will then place the pre-determined cash fund in each envelope. When that cash runs out, you stop spending. If something is left over at the end of the month, you have something extra to spend or carry over to the next.
Focusing only on the monthly expenses.
The final mistake that you can commit is focusing only on the monthly expenses. While this is where the bulk of your concentration will be, it is not the only thing that your budget should consider. Do not forget the annual, quarterly or semi-annual expenses that you have to make. For instance, your holiday shopping happens only once a year. Make sure you indicate this in your budget as well. The same is true for your taxes, back-to-school expenses, and birthdays. All of these need funds and you might miss out on them if you focus on the monthly expenses alone.
Once you have identified all of these mistakes, it is only a matter of avoiding them so you can commit to budgeting. When you get the hang of how it is done, the task will come naturally and will be less tedious.
How to motivate yourself to follow your budget
Eliminating the mistakes that keep you from enjoying a budget plan is not enough. You also have to think about how you will motivate yourself to stick to it.
Maintaining a budget plan never stops. It requires your constant attention. Here are some tips that will help you stay motivated to follow your budgeting strategy.
Regularly check your budget. Our budget plan is a reflection of our financial priorities. As we age, these priorities change. When it changes and you do not revise your budget plan along with it, you know that your budget will also fail. This is why you have to regularly look at your budget to check if it is still aligned with your priorities.
Set financial goals. Another way to motivate yourself to stick to your budget is to set financial goals. If you know that the changes you will make in your life will lead you to a financial goal, then you can overcome the difficulties to follow your budget. This is a great way to convince yourself that any sacrifice will be worth in the end.
Allocate a budget for entertainment expenses. It is also important that you allocate an amount for your entertainment expenses. It might seem like an unnecessary expense, especially when you are trying to live on a limited budget. But giving yourself time to enjoy your money is necessary for your overall well-being. Besides, there are different ways to have fun despite a limited budget.
Budget with someone. It also helps if you budget with someone. This can be a friend, a loved one or your spouse. If you share your budgeting goals and strategies, you can compare notes and encourage each other to stick to your budget. You can even turn financial goals into a friendly competition to make it more exciting.
Identify the consequences of not following your budget. Finally, you are encouraged to identify the consequences of not following a budget plan. According to an article published on Time.com, people tend to spend less when they recall a time when they resisted spending. Whether that memory resulted in a good thing was not really mentioned. However, it was effective in making them spend less. This illustrates how the power of the mind can be a powerful tool to help you stick to your budget.
Budgeting may be quite tedious but the benefits that it can bring to your financial life makes it all worthwhile.