With good intentions, most people will set up a budget, but all too often they fail to follow it. This is usually because their budget wasn’t set up properly in the first place. Here are some of the biggest mistakes people make when it comes to following a budget, and ways to avoid them to finally get your personal finances under control.
Making Your Budget Too Strict
This is a trap many people fall into, especially when they’re creating their first budget.
Don’t become so gung-ho about paying off your debts that you don’t leave any room in your budget for recreational activities.
If you don’t treat yourself now and again, you stand a much better chance of blowing your budget altogether by going on a spending spree.
So leave some room for fun, even if it’s only a once-a-month thing. It’s not going to break the bank and it will help you save money in the long run.
Budgeting Beyond Your Means
This is the flip side of creating too strict a budget. Be very careful you are not budgeting for a lifestyle you can’t afford. Your income should always exceed your outgoing expenses.
Don’t rely on bonuses or credit cards.
Lifestyle inflation – living a lifestyle that you cannot afford – can very quickly become a big problem. Going out for an expensive dinner now and again, adding on extra cable subscriptions, taking a few taxis instead of using the bus or train, all these financial indiscretions will quickly add up.
Then suddenly your rent or mortgage payment is due and you don’t have enough money to cover it. Don’t get stuck living the paycheck to paycheck cycle it’s a tough one to break out of.
Trying to Keep Up With Other People
It may sometimes seem as though everyone is having a slice of the good life except you. You’d love a shiny new car just like your neighbor’s, or a vacation like the one your brother and his wife just had, or a bigger house like your co-worker has.
But before you get green with envy, you have no idea what their lifestyles are really like beneath the surface. They may be up to their eyeballs in debt, they may have no retirement plan and plenty of worries of how they will survive later down the road.
You on the other hand, by living within your means, will not be lying awake every night worrying about these financial issues.
But if you try to keep up with the Jones, you may end up just as broke as they really are.
Getting Into Debt
Some people rely too much on their plastic and it can get them into all kinds of financial trouble. Leave your credit cards at home and make sure you only use them in emergencies.
If you must use plastic, for online shopping, for example, use your debit card, that way your debts won’t be mounting and you won’t be saddled with huge interest payments.
If you have multiple credit cards, consider consolidating your debt so that you only need to make one monthly payment. If you talk to a credit counselor, they may even be able to negotiate with your creditors to reduce the outstanding balance.
Forgetting About the Unexpected
Everyone needs a financial safety net because you never know when the unexpected will happen. Your car could break down, you might need a new washing machine, or you could end up with unexpected medical bills. It’s important to have an emergency fund, just so that you have something to fall back on when you’re in dire straits.
Budgeting your finances can make the difference between having a comfortable lifestyle and living from paycheck to paycheck. So plan your finances carefully and make sure you don’t fall prey to these mistakes. If you do make a blunder, fix it as quickly as you can so it doesn’t become so big that you start to feel buried under it.