Are you having a problem making ends meet? Do you often run out of money before you run out of month? Are you doing your best to budget your money but it just doesn’t seem to be working? A good budget doesn’t have to be perfect but you need to be able to recognize mistakes you may be making that are keeping you scrambling from paycheck to paycheck. Here are 13 of the most common. Check out this list and you may discover why it is that your budget doesn’t seem to be working.
#1. Neglecting to save for the unexpected
One thing you can expect is that you will eventually run into an unexpected expense. It might be that you lose your job, your car breaks down or you have a medical emergency. When you created your budget with your fixed and variable expenses, did you remember to create an emergency account? You need to treat your savings account as if it were just another expense in your budget and add to it monthly. If you fail to budget for unexpected expenses and one occurs – which it inevitably will – your only alternative might be to put it on a credit card and rack up debt.
#2. Having expectations that are not realistic
When you’re working to improve your personal finances don’t set standards that are too high. Putting together an extreme budget might look good on paper but this approach isn’t always either realistic or effective. For example, let’s suppose that your budget calls for you to stop eating lunch out every day. Is that realistic? Many financial experts say that it’s better to start with small steps. Instead of trying to stop eating lunch out altogether you might pack your lunch to work a couple of times a week and then gradually add another day until you’re no longer eating lunch out at all.
#3. Estimating your spending
When you created your budget did you do it based on estimates? This rarely works because most people find they spend a lot more each month than they thought. A better answer is to track your spending for a month or two before you develop your budget. If you track everything you spend money on, you will be able to see where it’s going and develop a more realistic budget.
#4. Using your gross income as the basis for your budget
Is your budget based on your gross pay or your take-home pay? If you create a budget based on a gross pay of, say, $5,000 a month you’re bound to get into trouble because that’s not really the amount of money you have available for your budget. Your spending plan needs to be based on your net or take-home pay after all your payroll deductions have been subtracted.
#5. Having too many accounts
It can be tough to keep track of things when you have multiple credit cards, checking accounts and savings accounts. If you have multiple store and credit cards it could be difficult for you to track your spending and stay on top of all of your payments, which can lead to financial disasters. A much better idea is to simplify and streamline all of your accounts. As an example of this, you might transfer all of your credit card balances to a 0% interest balance transfer card. Do this and you’d not only have just one payment to make a month you’d have 12 or even 18 interest-free months where you could work on paying down your balance.
#6. Ignoring cheaper alternatives
Some fixed expenses are not really fixed. Take your utility bill as an example. You should review your monthly bill carefully to see if you couldn’t find ways to save. In some states you’re actually allowed to choose which company generates your electricity. If you’re lucky enough to live in one of these states do some comparison-shopping and you might be able to shave your bill substantially. Another example of this is your cell phone bill. If you haven’t reviewed it recently, give it a careful look. The cell phone provider business has become very competitive. You might be able to save money with your current provider by choosing a different plan or you could maybe take advantage of that one company that promises it will cut cell your phone bill in half.
#7. Failing to adjust your variable expenses
Budgeting is almost guaranteed to fail if you’re not willing to modify your spending habits. If when you review your budget you find you’re spending too much in categories such as shopping, entertainment, clothing and recreation you need to be willing to make adjustments. Otherwise you’ll just continue to overspend every month.
#8. Not updating your budget
The author Louis L’Amour once said, “The only thing that never changes is that everything changes.” Your life will change from year to year and so should your budget. In fact, the budget you created last year could already be partially irrelevant. If you want to avoid problems with your cash flow you need to update your budget on a regular basis. And if your income has increased don’t forget to add that.
Your friends may not have the same financial mindset as you or may not be as budget conscience. In fact, they may be living well beyond their means. If you try to keep up with them you’ll end up blowing more money than you can really afford. You don’t need to cut these people totally out of your life but just be careful about those with whom you shop.
#10. Neglecting to include irregular expenses
It’s good if you already have an emergency fund to cover your unexpected expenses. But you also need to make sure that you budget for those expenses that are irregular – like your insurance premiums or tax payments – that happen just once or twice a year. The best way to handle these types of expenses is to take their totals, divide it by 12 and then add this amount into your monthly budget.
#11. “Borrowing” money from other categories
A mistake that many people make is to borrow money from other categories when they run short in one. If you have a week left before payday and have spent all of the money in your entertainment budget, don’t borrow from your grocery budget. That’s just a surefire way to mess things up.
#12. Failing to budget for fun
Spending less money and being serious about your budget doesn’t mean you have to sit at home every day staring at your HDTV. You need to blow off steam occasionally and it’s not irresponsible to have a little fun with your money. No matter how careful you are in your budgeting it won’t work long term if you fail to allow for some fun stuff even if it’s just going out to a movie every couple of weeks.
#13. Not choosing the right budgeting software
It seems like there are a zillion different budgeting tools and apps available and it’s important to choose the right one. Many people choose Mint.com just because it’s popular and they’ve heard of it. But it may not be right for you. You need to look at some different options and then choose the program or app that you would be most comfortable with. Pick one, experiment with it and then if it seems too complicated or cumbersome, move on to different one until you hit on one that works for you.
Finally, here is a brief video courtesy of National Debt Relief that reveals several other common mistakes people make in budgeting.