Budgeting is one of the most important ingredients to financial freedom, stability and success. People who make use of budgeting in the right way are at the helm of financial success.
That’s an underlining fact.
There are people who fail to utilize the budgeting as a tool to financial success, and if you are one of those who is making a budgeting mistake then it’s time to correct your budgeting strategy and stop making those crucial budgeting mistakes which are spoiling the whole show for you.
It’s plain and simple. Prepare your budgeting plan and follow your budgeting techniques in the right way to stay in control of your money. If you want to see your bank accounts swell with money than you have to avoid the budgeting mistakes, you are making. Moreover, if budgeting is not working for you then it is only because you are not doing it in a proper way. This demands a correction in your budgeting practice.
Well, the good news for you is that you don’t have to be disgusted with respect to your budgeting practices. There is a solution for you. You have to know your budgeting mistake and then make the necessary amendments in your budgeting techniques so that the mistakes are not repeated by you.
Hereunder, I have listed down 5 Budgeting Mistakes to Avoid. The format of presentation is such that I have listed the budgeting mistakes and have also illustrated the Fix to it so that you exactly know what you have to do in order to avoid those critical budgeting mistakes.
Budgeting Mistakes to Avoid
Mistake #1: No Tracking of Your Expenses
The biggest spoiler of your budgeting extravaganza is that you don’t keep track of your expenses. Moreover, I will go onto say that you are not honest with your expense tracking. For instance, you don’t keep track of your expenses in the shopping mall. That will make your budget go off balance. If you fudge with numbers before entering them in your budget then you will never get the right picture of your spending. And that is a big mistake!
The Solution: Keeping track of your expenses will become easy for you; once you start keeping all the receipts and paycheck stubs with you. If that’s not solving the problem, carry a notebook and pen, and note all the expenses as and when they happen. That will give you a clear eyed look as to where your money is going. Once you have all the expenses noted down in your budget that will give you the correct picture of all your expenses.
Mistake #2: Mingling Your Fixed and Variable Expenses
Actually your monthly expenses can be divided into two clear heads. One is the Fixed Expenses and the other is The Variable Expenses. Fixed Expenses are those expenses that recur each month with no to little variation. Examples of Fixed Payments are Mortgages, Car Payments, and Insurance Premiums. Whereas Variable Expenses are those expenses that fluctuate each month. Examples of Variable Expenses include expenses on groceries, expenses on entertainment, etc. When you mingle fixed and variable expenses, you unnecessarily increase the complexity of managing your budget.
The Solution: Well the solution lies in managing these two groups independently. What you can do is to keep two separate bank accounts, each dedicated to these two groups. For this, you have to determine the average monthly expenses that are linked with Fixed Expenses, as well as Variable Expenses. When this is done, you can move on to allocate money in a separate bank accounts that you have created. When expenses occur, it is paid out from the bank account belonging to that group. For example, when mortgage expense happens, it is paid out from the bank account belonging to Fixed Expense Group.
Mistake #3: No Savings
Saving is an important constituent of Budgeting and if you are faltering on this account you are making a crucial mistake. Actual savings should drive your budgeting structure. It’s rather a warning sign if you are not saving for your future dreams, aspirations and requirements. With no scope for savings in your budgeting plan, you are cutting your own feet. Moreover, even if savings is the last thing you consider in your budget, the budget you are preparing is incomplete and out of context. If you are one of those who have put savings on the back burner, it’s time to restructure your budget.
The Solution: Well the solution is pretty straightforward. You have to make savings the number one priority in your budgeting scheme of things. For this, you have to do what is known as reverse budgeting for savings. This calls for allocating as much as you can for savings in the beginning while preparing your budget and then schedule expenses for other things. It can be a difficult decision for you, but remember that when you save you are giving freedom to yourself for better things in the future.
Mistake #4: No Emergency Fund
Well, an Emergency can strike at any time and when you are unprepared it’s even more worsening for you. You can be critically ill, meet up with an accident, lose your job, or need a car repair. These are only some of the emergency situations that can strike you. The only way to guard yourself against an emergency situation is to have an emergency fund ready with you. After all, you need money to get over your tough times. In this context, when you have no emergency fund allocations in your budget, you are making a costly and irreparable mistake.
The Solution: The solution is pretty obvious. Set emergency fund allocations in your budget. You can start with a modest emergency fund but be sure to have some room for creating an emergency fund in your budget. Even a modest $100 per month allocation towards your emergency fund could be enough to prevent you from borrowing money or blowing away your plastic money.
Mistake #5: No account of irregular expenses
There are certain expenses that are not regular in the sense that they occur every month, but they certainly crop up every year or quarter. These are irregular expenses. One characteristic feature of irregular expenses is that they are budget busters particularly when you have not planned them in your budget. They come out as budget breaker for sure. Examples of irregular expenses can be property taxes, car insurance, birthday parties, and things like that. If you have not planned for irregular expenses in your budget, you are sure to fall in a debt trap.
The Solution: Make room for irregular expenses in your budget. For this, have an elaborate list of irregular expenses so as to cover each and every such expense and figure out the actual cost that will go to cover up these irregular expenses. When you have the total irregular expenses amount with you, divide that sum by 12 and allocate this amount in a separate account to meet these expenses. For this purpose, you can open up a bank account which caters to your irregular expenses. So set up an irregular expense head in your budget and allocate the fund to it each month religiously. This will ensure that when such expenses occur you are geared up to meet them right away.
By now you must have realized that budgeting is an important tool in your hand which has the power to make you financially fit. However, in the course of our budgeting planning and execution, we often end up making crucial mistakes which spoil the very purpose of preparing a budget. If you really want to benefit from your budgetary planning, you must avoid making budgeting mistakes.
In this context, the 5 Budgeting Mistakes to Avoid that have been listed above can be an eye opener for you so that you do not make such mistakes. It is natural to make mistakes, but we must be quick learners so that we end up making amends for the mistakes we have done.
The 5 Budgeting Mistakes to Avoid surely guide us to proper budgetary planning and execution so that we may benefit from the whole exercise of preparing the budget and executing them. After all, your goal is to achieve financial success and prosperity and for this you need a sound budgetary planning and execution.