Budgeting doesn’t usually make the top of anyone’s want-to-do list. But having a budget is an important part of managing your money. Budgeting is the best, most practical way to keep track of your spending, and more important, to keep a grip on it.
Still, there are a few things you need to watch out for when making your budget. Budgeting requires mental discipline. And to help maintain that discipline, here are four budgeting pitfalls you should avoid.
Unrealistic expectations
This is probably the most common error people make when they’re planning their budgets. If your grocery costs are N6,000 a month, then it isn’t reasonable to budget only N3000 in an effort to save money. So keep all of your expectations, even the good ones for saving money, realistic and fair when you plan your budget.
Mistaking luxuries for necessities
You’re absolutely convinced that those weekly massages are life-saving. But you could probably live without them – if you had to, right?
Many things we spend money on dress themselves up as needs when they’re really wants. So don’t let yourself be fooled. If you don’t have to have it and you don’t have a comfortable place for it in your budget, then it’s time to let it go, at least for a while.
Expecting windfalls
That hot stock you bought may earn back double what you paid for it in six months—and it may not. That 12-month CD will come due next month, but your car may break down and need major repairs.
So to keep your bottom line healthy and keep your sanity at the same time, don’t add the income from these sorts of “windfalls” into your budget. You’ll still find a place for that money, if and when it comes.
Buying before trying
Rather than budgeting for that new motorcycle you think you need to help you save on your gas bill, how about renting one first – in January? Do you still think it’s such a great idea?
Many times we jump into things we’re stuck making payments on forever, all with the best of intentions. Trying some of these things out first could save us a great deal of money we could spread out in other places in our budgets. So the next time you have a bright idea, try it out before you plunk down your money and you won’t have to cringe every time you make out that payment check.
Successful budgeting is key to good financial health and it really isn’t hard. It just takes some thought and time. These five steps will help create a budget that’s not only realistic, but is successful as well:
List your expenses
Make a list of your fixed expenses such as mortgage or rent payments, car payments, insurance payments, etc. After that, make a list of your fluctuating expenses. These include expenses for dining out, dry cleaning, hobbies, and other bills or expenses that don’t have a consistent payment. Take the time to review old bank statements and check registries to help you calculate estimated figures for these expenses. This is vital to successful budgeting.
Separate your wants and needs
After you have made your lists and can see where you’re spending your money, check those lists for places you can curb costs or eliminate them entirely. This is especially important to successfully budgeting to eliminate debt or save money toward a specific goal. Any place you see you’re clearly wasting money, get rid of it.
Ensure your expectations are realistic
The objective of a successful budgeting is to help you plan for actual expenses while at the same time setting goals for spending that will allow you to save money.
Consider buying budgeting software
Part of the reason you do this is for guidance in successful budgeting. It helps you understand the expenses categories and helps you map out strategies for successful budgeting. Another part of it, though, is psychological. By investing in budgeting software, you mean business when it comes to your budget and saving goals.
Get your family on board
For the most successful budgeting possible, everyone in your family needs to know and understand the budget. It won’t do any good to create a budget if your husband or wife isn’t aware of it and continues to spend money in ways you haven’t planned for or on things you haven’t made allowances for in your budget. And it’s never too early for kids to develop money skills and to know that there are limits to how much money you can or will spend. So the earlier you get them started, the better.