All alliteration aside (sorryâ€¦ itâ€™s hard to stop), for many people the dreaded â€śBâ€ť word conjures images of paperwork and spreadsheets piled to the ceiling, as you sob uncontrollably at the kitchen table.
But a budget is simply your way of telling your money where you want it to go!
Whether youâ€™ve lived on a budget for years or are just starting, there are some common mistakes that can completely de-rail your spending plan. The good news is that these big budget blunders are easy to avoid and fix.
To help you in your quest to build a better budget (seriously, I canâ€™t stop), here are
Â The 4 Biggest Budget BlundersÂ
(and how to fix them)!
1. Not Having a System
Piles of envelopes, bills and receipts scattered throughout your house is not a system. Itâ€™s a mess! Without developing a simple system for organizing your financial life, itâ€™s near impossible to create and follow a realistic budget.
Implement a system! It seems simple, because it is. If you want to organize your paperwork, buy a simple file box with hanging file folders. To organize your electronic data, create a very basic spreadsheet. This alone can save you hundreds of dollars in overdraft and late fees. For some great tips, check out these 8 keys to an organized financial life.
2. Not Tracking Your Spending
How much did you spend on restaurants last month? How about entertainmentâ€¦clothesâ€¦.groceries? If you don’t actively track your spending, youâ€™re likely blowing thousands of dollars every year. Impulse buys and mindless spending are some of the biggest budget busters.
TrackingÂ the money you spend sounds like a painful and tedious process. But itâ€™s actually quite easy once you implement a simple system. Hereâ€™s the challenge: For 1 month, keep track of every penny you spend. Use a small notebook or your smart phone. For every expense, note where you spent, how much you spent and what you bought. Be sure to keep every receipt. Hereâ€™s the key â€“ at the end of the month, sit down and tally up how much you spent in each of your budget categories. Once you start keeping track, youâ€™ll spend less simply because youâ€™re thinking about it.
3. Not Developing the Habit
Change is never easy! Youâ€™ve done things a certain way your whole life and now you have to change course. Just like an impulsive New Yearâ€™s Resolution, your financial plan is destined for failure if you donâ€™t deliberately develop some new habits.
“We are what we repeatedly do. Excellence then, is not an act but a habit.” -AristotleÂ
Youâ€™ve heard it takes 21 days to create a new habit. That means that developing solid financial habits is as simple as getting started! Choose 1 new habit to work on â€“ maybe budgeting, tracking your spending or cutting out a certain expense. Write it down, tell other people about it, get accountability to stick with it and do it for 21 days. Once youâ€™ve mastered your first new habit, move on to the next. Make change as easy as possible by making it a habit!
4. Not Preparing for Emergencies
There are those lucky few who never get sick, need car repairs or lose their job. For the rest of us, thereâ€™s the Emergency Fund. Life rarely goes according to plan and occasionally you get side-swiped by the unexpected. If youâ€™re unprepared, youâ€™ll have no choice but to run back to credit cards and home equity loans to save you. But when emergencies strike, the LAST thing you need to do is rack up a bunch of new debt!
As fast as humanly possible, you need to save $1,000 as a starter emergency fund. Sell stuff, work extra, avoid all discretionary spending – do whatever it takes to get that starter emergency fund in place. Then, and only then, should you move on to your Debt Snowball. Once you are debt free, other than your mortgage, youâ€™ll come back and build up your emergency fund to cover 3-6 months of your household expenses. This safety net ensures that your finances will stay secure, even in the face of emergency expenses.
Learning to live on a budget can be a difficult skill to develop.But it’s just that – a skill to be developed. It’s a lot easier when you learn to avoid these big budgeting mistakes.
Now get to it!
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