It can be extremely difficult to stick to a budget. Sometimes, an emergency or unexpected expense will come around, and you will have to spend more than you intend. However, if you are regularly going over your budget, you may be committing at least one budget blunder, if not more. According to Gallup, as of 2013, only 32 percent of Americans were preparing a detailed budget each month.
Before you can commit a budget blunder, you have to be following a budget, and it is absolutely important to do so, because budgeting helps you stay on track with your spending and, potentially, save more money for your future. Once you have established an effective budget, you will need to avoid some habits and implement others to have your budget succeed. Here are five budget blunders to avoid.
1. Not setting the correct budget
Regardless of whether you already have a set budget (but it isn’t set correctly) or you are trying to establish a budget, you need to make sure you are setting your budget fairly. There are many budget sheets available for free online, and using one can help you establish, or fix, your budget. After you determine how many bills you have and what they cost you, see how much discretionary money you have left and make sure that you set savings goals, as well.
If you set your budget too low and you can’t afford to save properly or pay your bills, you will be setting yourself up to fail. On the other hand, if you leave too much money for entertainment spending and you don’t save enough, your budget will fail in a different way.
2. Rationalizing overspending
Everyone is guilty of rationalizing sometimes, but regularly rationalizing your spending will really damage your budget. Things will always come up, and that is unavoidable. Emergencies are a good reason to overspend, but in general, there are few other reasons. If you want to go on a vacation, you should save money in your budget ahead of time, and the same is true of other big expenses.
Work extra money into your budget for unexpected expenses so that they don’t throw you off track. Also, be willing to say no if your entertainment budget is already gone for the month — you don’t have to go out to eat if you don’t have the money for it, even if you can rationalize it as important time with friends or family. There are always other options.
3. Impulse buying
Impulse buying is one of the easiest ways to derail your budget. While $5 here and $10 there might seem like nothing, it adds up quickly. Make sure that you go to stores with a specific shopping list and stick to the items that you have on your list. Shopping with cash can also help, because you can’t go over your budget if you don’t have the money with you. If you frequently spend more because you are shopping with friends, choose to shop alone instead, and avoid situations that you know are likely to make you spend more (like a big sale at a clothing store when you don’t really need clothes).
4. Not being organized
Even if your budget is right on track with your income and your savings goals, you will find that it’s difficult to stay on budget if you don’t have an organized system to follow. There are many ways that you can make budgeting easier for yourself. There are several budget apps available. You also can use a budget sheet, as mentioned earlier. Make it a point to write down your spending every time you buy something, and don’t wait until you look at your account and wonder where the money went. Also, keep all of your bills in one file, and if possible, sign up for electronic deductions so that you know exactly when your bill will be paid each month.
5. Not having an emergency fund
Not having a proper emergency fund is a serious budget blunder, because when an emergency strikes, you will have to take money out of savings, or worse, possibly use a credit card to fix the problem. You should set aside money each month from your budget in order to put in your emergency fund. It’s best to have at least six months of your regular income saved, but experts disagree about just how much you need exactly. The more you have, the better. If you do face a financial emergency, hopefully you will have an adequate emergency fund, or you may have to make other arrangements to pay for what you need.
These are just five budget blunders that many people regularly make. Emotional spending is another problem, and so is failing to prioritize debt or bills over other spending. Renting an apartment or purchasing a house that costs more than you can afford can also throw your budget off.