7 Common Mistakes in Budgeting Money
Budgeting money can feel overwhelming at first, but if you’re honest about your spending habits, you’ll quickly figure out how to save money with small changes. These common mistakes can become great money saving tips:
- Under-budgeting everyday costs.
Leave room for everyday costs in your budget. Include food and transportation, plus items you might not think about, like gifts and haircuts. Don’t underestimate what you spend—if you eat out weekly or grab coffee at a café most mornings, include that in your budget. Be honest with yourself and you won’t under-budget for your daily spending. If you’re unsure of how much you spend, start tracking and logging your purchases for a better understanding of where your money is going, or open a credit union savings account.
- Not saving for emergencies.
Saving for emergencies is essential and can really help out when sudden costs, like car trouble or a broken water heater, arise. Ideally, you should have at least 3 months’ living expenses saved at all times, but if you can save more, do it so you can save for other items that may need replacing, or in the event of job loss or illness.
- Not budgeting for fun.
When you make your budget, account for spending money for dining out, seeing that new play or celebrating a birthday. If fun is included in your budget, you’re less likely to overspend. Budgeting for entertainment will also help keep you accountable and curb excess spending. Plus, if you don’t set aside some fun money in your budget, you could think you’re failing and get frustrated. Instead adjust your budget according to your finances and factor entertainment spending in advance.
- Not keeping track of how much you spend.
Speaking of overspending, it’s important to keep track of what you’re spending and when. If you’re not paying attention to how much money you use, it’s easy to overspend accidentally. Keep track of your spending, and you’ll have enough when it’s time to pay the bills. And, if you track and log your expenses by expense type (e.g. groceries or utilities), you’ll know where to make adjustments in your budget later on when you have another savings goal or need to work on paying off debt.
- Only making minimum payments on credit.
If you only pay your minimum payment, you could only be paying the interest you’ve accrued, meaning your balance continues accruing more interest each month. Instead, pay your credit card balances off each month when possible. This helps keep your credit in good standing and helps you avoid paying too much in interest. If you have too much debt to pay it off each month, now is a good time to create a short- and long-term repayment plan to help you become debt free.
- Buying a car or home you can’t really afford.
Generally, two of your largest monthly costs will be your home loan and car loan payments. If you’ve purchased a car or home with monthly payments that strain your budget, money will be consistently tight. Instead, take your monthly budget into account when making big purchases, and make sure the monthly payment and associated costs are well within your comfort zone. Forbes recommends that your monthly mortgage payment should not exceed 28% of your gross monthly income.
- Not making a budget at all.
This is probably the biggest budgeting mistake. Without a budget, you don’t know how much you can spend without getting yourself in trouble, and mistakes 1 through 6 will all compound quickly. Careful budgeting allows you to enjoy your money and can help you live comfortably.
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