Whether you’re a budgeting newbie or have been keeping track for years, there are some common budget traps and mistakes that are all too easy to fall into. For many people, spending habits are a blind spot that aren’t always easy to correct. Here are seven common budgeting pratfalls to avoid:
#1: Forgetting about seasonal or annual expenses
You may opt to pay annual expenses upfront or pay a lower annual fee as opposed to receiving a bill each month for certain services. Divide the cost of these expenses by the number of months you will be ‘using’ the goods or services so that you have an accurate idea of what your cost of living actually is from month to month.
#2: Failing to itemize savings contributions in the budget
Taking the step to include your monthly savings contributions as an ‘expense’ in the budget will make it that much easier to stash away a portion of your income with little effort. Automating your savings is another way to ensure you’re feeding that all-important savings habit.
#3: Overlooking everyday expenses
Picking up the tab for a friend’s lunch, a few cups of coffee from your favorite coffee house and those last-minute convenience store runs could be putting a dent in your budget without you realizing it. Make sure you’re tracking those extra expenses and accounting for them in some way. Use a budgeting app to keep track of day-to-day expenses or get in the habit of keeping receipts and logging your spending activities at the end of the week.
#4: Neglecting to update your budget regularly
You don’t have to do this every week but you may want to revisit the budget at least once a month to make sure you are working with accurate numbers and have a fair idea of how much money you have on hand. Adjusting the budget to accommodate for new monthly expenses or recurring payments is an essential part of the process.
#5: Buying on credit without accounting for it
Paying with a rewards credit card can be a smart way to earn money on your purchases — as long as you have the ability to pay off the balance in full before you get hit with interest charges. If you are buying on credit and haven’t made room in your budget to handle the extra expense, you could be sabotaging your goals and cheating on your budget.
#6: Not making room for an emergency fund
It’s easy to blow off the idea of building up an emergency fund until you have a financial windfall or you get a raise, but you need to make room for that type of savings contribution month after month. Adjust your budget to account for an emergency fund so you have a cushion available in the event your car breaks down, your insurance company denies a claim, or you need to help out a family member.
#7: Making things too complicated
Are you playing with a few smartphone apps, updating two different spreadsheets, and reviewing dozens of different columns each week just to keep tabs on your money? You might be making things more complicated than they need to be. Streamline the process by using just one app or one spreadsheet — we’ve heard good things about You Need a Budget – to consolidate your money-tracking activities and have an accurate idea of how much you are spending and saving each month.
What are some of your favorite budgeting strategies? Let us know in the comments below!