You want to save up for your future, and you want to be more financially stable. These goals are pretty standard but they are actually quite challenging to attain. Budgeting is the simplest but one of the most effective methods of saving funds. But as simple as it may sound if your will to resist an impulse purchase is weak then you are bound to make a few budgeting mistakes.
You need to develop good spending habits and be able to resist any temptation to spend more than you should on things that won’t serve you in the future. Find out what budget mistake you might be making in this article.
Defining a Budget
Before we get to the juicy parts, let’s define what a budget is first. Simply put, a budget is a spending plan that you make for a specific period. Creating a budget involves determining how much money you are making and how much expenses you incur for a specified period. People usually budget with a particular goal in mind like saving up for a holiday trip or treating themselves to a good restaurant or something even more significant. You need to be specific with your goals because basing your budget on a vague idea is a sure way to a failed budgeting effort.
Here are some budgeting mistakes that you may be making:
1. Setting an unrealistic goal
If you set your goals too high then you are setting yourself up to fail. There is nothing wrong with aiming high, but make sure that you are not expecting yourself to do so much in such a short time. For example, wanting to have $1 million is doable but ask yourself if it’s realistic to expect yourself to save up that much in two months.
The thing with unrealistic goals is that it hurts your motivation whenever you fail or if you are not progressing as much as you want to. For example, again with the $1 million goal – if you don’t save up at least half by the end of your first month, you would realize how it is not possible and end up not following through your plan at all.
2. Not taking your monthly income into consideration
How do you even make a budget without knowing how much money you make in a month? If you don’t know how much your salary is, you would not know how much you can actually spend on bills, rent and other necessities. You would have spent every cent before you can even set aside for your savings.
3. Not knowing how much your expenses are
There are two kinds of expenses – no, make that three.
- The first kind of expense is incurring ones. They are your electric bills, water bills, rent, loan repayments, and other expenses that you know are coming every month with no fail.
- The second kind is the ones that are not fixed, but you know are necessities like food and groceries.
- The third one is stuff that you buy to treat yourself (which is good in moderation) and things that you probably don’t need at all (like a vase you bought because it’s on sale).
Not taking note of your expenses can lead you to treat yourself a little too much or to give in easily to your impulse to buy. When you know exactly how much your necessary expenses should be you can adjust the third kind of expenses accordingly.
4. You are not living within your means
This means that you are spending more than you earn. It is already a bad budgeting sign if you are used to having a negative number in your account. Not fixing this bad spending habit is a budgeting mistake because what can a piece of paper with a plan do if your willpower to resist overspending is as fragile as a baby’s head? Until you address this issue, then there would always be a destruct button to your budget plan that will inevitably get pressed when a sale comes around.
5. Not sticking to the plan
Not sticking to the plan is an obvious mistake, but it is one that most people make. You would be saying things like “I’m only going to go over my budget just this once,” or “This is the last time I’m doing this,” then the next thing you know all your money is gone and you have not followed your budget plan for six months. Heck, you might even have stopped making budget plans in your second month.
The thing is – sometimes the answer is right in front of you but you are not seeing it. If you think of it, this list is composed of obvious reasons why your budget is failing and why you are doing it wrong. But sometimes you need a helping hand to point these things out. Just keep in mind that your budget goal needs to be realistic. You must know your finances inside out and you should stick to the plan so you would not go astray.