Can you believe we are on day 8 already? So far, we have defined our why, crafted our financial mission statement,written our financial vision, set our S.M.A.R.T. financial goals, made sure we are on the same page as our significant other, determined out net worth and broken our bad spending habits. We have covered massive ground, but there is still more ground to cover. If you are just joining in, make sure to go back by clicking here and, catch up and do the exercises.
Today we will focus on avoiding common budgeting mistakes, however, you already knew that by the title of the post. Everyone makes financial mistakes at some point, and that’s ok, it’s a part of life. When you know better, you do better, at least you should do better.I feel that if you are aware of certain common mistakes, you can reduce your chances of making them. It is not complicated to build a solid budget; even the best of budgets can go awry. There are some common mistakes that throw people off, and that’s not a problem we all get off track sometimes. Here are a few common mistakes that I have made and seen others make.
Making your budget too strict- I know that budgeting can be tedious and far from exciting, however, the feeling you get from taking hold of your finances and the results that you anticipate from doing so can be most refreshing and exhilarating, In all of the excitement, we can become consumed and create a budget that is too strict. I have been there and done that and let me tell you, you won’t stick with your budget if you make it too strict. Making a budget with no room for fun, small indulgences, or discretionary spending can and will backfire. I know, I have been there and it wasn’t pretty. Even the smallest discretionary spending would have my budget so far off track that it made my budget pointless.
Another pitfall of an overly strict budget is you will become tired and frustrated, from restricting yourself, so you go on a spending spree. You end up spending more than if you had given yourself a small amount of “mad money” in the first place.
A better option to curb this pitfall is to budget for the life you have. When you are crafting your budget, and assigning spending categories, be realistic. If you enjoy the occasional night out on the town then allow a certain amount of money for it. Don’t tell yourself that you won’t enjoy any indulgence at all, because you know that isn’t true. Instead, give yourself a little breathing room.
Budget with a purpose- This goes back to setting financial goals. What good is your budget if it doesn’t have a purpose? When you don’t have a purpose, your budget then becomes an afterthought versus a spending plan to aid you in reaching your financial goals. Come up with a purpose for your budget. Whether it is to get out of debt or to go an a lavish vacation, give your budget a purpose.
Forgetting irregular expenses- Life happens and things “pop up” from time to time. If thing’s “pop up” for you on a monthly basis, then you probably have not budgeted for those irregular expenses. No worries, it happens to the best of us and is quite common and easy to fix. What I did was add a “random” category to my budget and set an amount to be placed there. This is different from an emergency fund, this is just for those random thing’s that come up, such as, a field trip for the kid’s or that contribution to some random expense at work, such as, a gift for your boss on bosses day.
Emergency fund- Those irregular expenses we just talked about illustrate the need for a cushion in your budget and an emergency fund. Of course, the children’s field trip is not an emergency, but your car breaking down is. With an emergency fund, you have a place to pull cash from rather than blowing your budget. Building an emergency fund will help keep you from blowing your budget when the unexpected happens.
Now that you know these common mistakes, be sure to steer clear of them.
If you would like more assistance with voiding these budgeting pitfalls, I invite you to book a consultation with me.