A budget can be defined as a plan of revenue and expenses over a certain period of time that should be updated often. If you’re reading this, you probably already read about why you should have a budget and its benefits and took the first step. But are you doing it correctly? Check out the most common budgeting mistakes people make:
Not Having One at All
The most common budgeting mistake people make is not having a budget at all, either due to procrastination or not knowing how to start. It is essential to know where every dollar is going so that you can prepare and create goals without making impulse purchases and getting into debt.
Guessing Your Expenses
Another common budgeting error you might be making is guessing the monthly costs instead of tracking it accurately, which can result in underestimating or overestimating your expenses. The ideal budget should be divided into three categories: 50% for needs, 30% for wants, and 20% for savings. If your expenses go over that, you should find a way to either make more money or lower or cut expenses.
Not Being Flexible
When creating a budget, most people think that they should make it tight and strict. However, if you have to pay an unexpected expense or spend on something that hasn’t been assigned to your budget, it may make you feel lost and quit. A good idea would be creating a category for things you want to buy, where you have to play money and can spend it however you want without feeling guilty.
Categorizing Wants as Needs
Most people create excuses for themselves when they purchase something that is unnecessary, that they need that particular item so that they don’t feel guilty. And the same can happen when they try to create a budget. You have to be honest with yourself when categorizing your expenses to “needs”. For instance, you should classify groceries and rent as “needs”; entertainment, takeout dinners, and subscriptions are “wants.”
Not Tracking Your Spendings
For a budget to work, you need to know where each dollar is going each month. And for that to happen, you have to annotate your expenses weekly, or more preferably, daily. A good idea would be to dedicate 15 minutes of your time at the end of the day so that you can reap the benefits in the near future.
Not Having an Emergency Fund
Everyone should have at least three months of expenses in savings for unexpected events that can happen in life. An ideal budget should have money allocated to this. If that’s still something new for you, you can start small, save at least 5% of your income for an emergency fund, and gradually increase it. That way you will create a habit of saving money more easily.
Giving Up Too Fast
You probably noticed that most people when starting a new habit get all excited and dedicated, but after facing small difficulties, give up and never try it again. It is really important for you to persist in it if you want to get out of debt and reach financial success.