Mistakes to Avoid when Budgeting
Creating a budget is a sensible and adult thing to do. Savvy consumers should keep track of all money coming in and going out the door, so they can maximize their savings and keep themselves from falling into financial disarray.
However, there are some common mistakes that people make when budgeting money. By addressing these errors, consumers can strengthen their overall financial position.
Not Accounting for Small Purchases
Most budgets consist of a column for income and another column for all expenses. Many people, unfortunately, only list their big-ticket expenses, like rent/mortgage and student loans. To properly balance a budget, however, you need to account for all purchases, including small ones.
That $1.50 bag of chips? Count it. The cup of coffee you get while buying gas? Count that, too. It is all money you are spending, so you should include it in your budget. Not counting small purchases is one reason many people on a budget nevertheless fall behind.
One problem involves keeping track of small purchases. You can try to keep receipts, but that is often unwieldy. Better options include using your debit card for all purchases, no matter how small, or installing an app on your phone that makes it easy to track all impulse buys.
Refusing to Reduce Spending
A budget is only balanced if the amount you spend is equal or less than the amount you bring in each month. If you’re spending more, then you are going deeper into debt.
One of the reasons to create a budget is to identify places where you can cut costs. Some are easy—getting rid of a gym membership you don’t use, reducing the amount of meals at restaurants, etc.
However, people tend to shy away from reducing transportation and shelter costs. We don’t blame them. But if you are truly desperate, you need to consider giving up your car and taking public transportation for a few years, at least until you are on sounder financial footing.
The same is true of housing. If you rent, you might need to get a roommate. And what if you are paying a mortgage you really can’t afford? Now is the time to consider whether you might be better off downsizing to something smaller.
Not Saving Enough
An ideal budget frees up money to save. This can be tricky, especially if your income is really low. As soon a realistically possible, however, you need to start saving for:
- An emergency fund. Try to get 6 months of expenses, which can come in handy if you lose your job or need medical care.
- It is never too early to stash away cash for later. Open an IRA or put money in a 401(k) if your employer offers it.
To save, you might have to start small—very small, indeed, at least initially. As your income grows, you can contribute more, but you should start now.
Drowning in Debt? Give Us a Call
Sometimes, filing for bankruptcy is a sensible step in creating a stable financial plan. Contact Nowack & Olson today. Our Plantation bankruptcy attorneys have helped over 20,000 consumers obtain a fresh start. Call 888-813-4737 to schedule a free consultation.