You created a financial plan (Yay!) but are you making budgeting mistakes without even knowing it? Avoid these common pitfalls to control your spending and stay on track.
12 Budgeting Mistakes To Avoid
1. Forgetting Small Purchases
It’s a great idea to track your expenses especially when you’re on a budget. Often, we’re great at remembering the big purchases or payments but what about that coffee you bought this morning? It’s these little amounts that can derail your financial plan and you don’t even realize it! Then, at the end of the month, you’re stuck wondering where your money went.
At the end of each day, ensure you make a note of ALL purchases made that same day. Use a notepad and pen or a digital app. That way, you won’t miss a thing.
2. Not Tracking Expenses
Okay, I mentioned forgetting to track small purchases but not tracking expenses all together is even worse. Writing down every little thing you buy may be tedious but it makes it quite clear when you’ve gone off track, sometimes painfully so. But don’t think of it as a bad thing! It gives you an opportunity to make better decisions the next time around. (Glass half-full people!)
3. You’re Unprepared For Emergencies
Life is great and then, out of nowhere, your refrigerator stops working. So, what now?
Well, you could try living without a fridge but odds are you’ll want a new one or, at the very least, to get the old one repaired. Not having an emergency fund for such an occasion is one of the biggest budgeting mistakes you can make. Without an emergency fund, you’ll need to use your credit card or get a loan and then all of your progress will have been for naught.
An emergency fund of at least $1000, helps tremendously when unforeseen circumstances crop up. Make sure to have yours in place before you dive into executing your budget. Even if you’ve already started your budget, it’s never too late to create an emergency fund.
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4. Using Credit Cards
Credit cards are awesome when you have the money to pay them off immediately. Presumably, a lot of people use them when they don’t have the cash available. That’s when they become nasty little debt traps. If you do not pay off your credit card balance before the due date, you will be charged an interest fee. Avoid this by using cash for your purchases.
Using cash is my recommended form of payment because you get a tangible reminder about how much you’ve spent. This is essential to reign in your spending and keep your budget intact. The cash envelope system is a great way to organize money allotted for the various categories of your budget.
If you absolutely have to use your credit card, make every effort to pay off the balance before the due date.
5. Impulse Purchases
Retail stores are designed to make you buy items you didn’t need with their conveniently placed, eye-catching displays and colourful packaging. Resist the urge to impulse shop by taking a list of what you need when you go shopping. Make sure you stick to your list!
6. Comparing Yourself To Others
Another budgeting mistake is trying to follow in the footsteps of others. You see your friends, and perhaps neighbours, going on expensive vacations, driving nice cars and you want that for yourself. I get it! It’s hard not to want more and dream big. But you will drive yourself crazy comparing where you are in life to others so just save yourself the heartache and focus on your own path.
Just because you see others doing fancy things doesn’t mean they are in a good place financially. They may be deep in debt and in complete denial about it. Which leads me to my next point…
You can’t maintain a financial plan if you are in denial about where your money actually goes. Track everything you spend your hard-earned dollars on and not just the big stuff.
I can completely relate to this point. I knew that I spent a lot of money on food but until I started tracking it, I didn’t realize just how much was wasted on eating out. It was shocking, let me tell you.
When you finally sit down and calculate your expenses and I mean ALL of them, it can be eye-opening. It may just be the jolt you need to take your budget seriously and do everything you can to save money and get out of debt.
8. Succumbing To Peer Pressure
Your friends invite you out over the weekend and you can’t say no, right? (Or you just don’t want to say no.) So, you go out to an expensive dinner that you didn’t have in your plan.
Not letting your friends and family know that you are on a budget is a sure-fire way to overspend. Everyone needs to be mindful and supportive otherwise you may just find yourself giving into the situation I mentioned above. Being financially aware is nothing to be ashamed of so get everyone on-board.
Create a list of things to do on a no-spend weekend that you can suggest as an alternative to expensive nights out.
9. Depriving Yourself
Yes, you are on a budget but that does not mean that you have to stop living. Too much restriction can make you miserable and eventually you will rebel.
Think about the strictest diet you’ve ever been on. You stick it out for the first couple days; you may even make it a full week. But sooner or later, you binge on food you’ve been craving all along completely ruining any progress you may have made while dieting.
A budget is a lifestyle just like healthy eating. Choose a monetary diet that is strict enough to save you money and help you get out of debt but one that you allows you to consume things you enjoy.
10. Being Cheap Isn’t Always A Good Thing
“I hate bargains”, said no-one ever. But, there are times when being a cheapskate isn’t always a good thing. Spending money on quality items actually makes more financial sense in the long run e.g. clothing that you will wear often, flooring in your home. If you buy cheap stuff, it will not last as long and you will spend more trying to replace it regularly. So truly think about items you need to purchase and weigh the pros and cons.
When grocery shopping, driving from store to store to purchase the cheapest items wastes gas and time. Select a grocery store than has reasonable prices for the majority of your shopping list and stick with that. Another option is to alternate the stores you shop at so you get the best prices.
11. Following The Same Budget Each Month
Life never remains the same so following the same budget month after month is one of the budgeting mistakes you don’t want to make. Plan your budget each month and think about holidays, birthdays, taxes and any other expenses that you will incur during that period.
12. Giving Up
A budget, as I mentioned before, is a lifestyle. It’s not a quick solution to saving money or getting out of debt. A successful budget requires tweaking and patience before it pays off. Avoid giving up on your budget too soon.
Budgeting is stressful but when it’s done right, it can be so effective! Now that you know what budgeting mistakes to look out for, you can control your spending and be well on your way to financial freedom.
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