Many people perceive budgeting as a way of depriving themselves of their wants and only providing for their needs. However, a budget is a simple tool that allows you to reach your financial goals by simply allowing you to spend your money on a piece of paper before spending it in cash.
A detailed budget without the common mistakes mentioned below is a crucial part of a healthy financial plan.
7 common budgeting mistakes:
With some easy accounting and realistic goals, you can easily plan and stick to a budget without having to sacrifice a lot. Just avoid the above-mentioned mistakes and you will have a spending plan that works and is easy to stick to.
- Not having a budget at all: The biggest mistake you can commit as part of your financial planning is not having a plan at all. When you know where and how much of your money is flowing out of your pocket, you will be in a better position to manage it.
- Not including income tax: For most salaried people, income tax is deducted from their salaries each month by their employers automatically. Others have to file their taxes at the end of the year. In both cases, if you don’t account for this necessary expenditure then you’d make a spending plan with money that you don’t technically have.
- Not having a category for emergencies: One thing you can be certain about in life is uncertainties knocking on your door at any time bringing unaccounted expenses with it as its plus one. The only way you can manage the two is by preparing for them in advance by building a financial cushion.
- Thinking you can live without fun: You earn to live your life the way you want and spend on things that matter to you. If you don’t include those in your budget then what is the whole point of it? Just follow a general rule of thumb to strike a balance between fun and responsibility. Keep about 10% of your disposable income for entertainment, 30% on savings, and the rest of other essential expenditures. These figures might change when faced with emergencies or changing priorities.
- Overcomplicating your budget process: Budgeting can be fun and easy if you don’t overcomplicate it with bulky diaries and a stack of each and every bill you ever paid. There are plenty of apps like BudgetGuru that can help you make this process a lot easier by directly linking to your bank account and recording your expenses. You can also categorize your expenses and review them at the end of the month to get a better understanding of your spending. However, a quick word of caution: Many budgeting apps will need to link to your bank account. Make sure you check the number of downloads, app reviews, and star ratings before you give an app access to your bank accounts. The last thing you need is to grant a malicious service access to your finances. BudgetGuru is a safe option in that case.
- Failing to negotiate: Discounts! They are your friends besides coupons and deals that will help you pay more bills with less money. Check for loans that you can refinance for less interest rate or credit cards that charge less service tax. For utility bills, you can look around for deals provided by other service providers that’ll cost you less for the same service. The key is to be vigilant for offers and discounts to minimize your spending. Never forget; money saved is money earned !!
- Forgetting about semi-regular expenses: When planning monthly budgets, it is easier to account for recurrent bills that are charged on monthly basis and forget the yearly ones. However, they exist and add up to your overall expenditure. Jot down all your yearly subscriptions and bills, divide them by 12 and start keeping money aside for them every month to prepare for that one big payment.
