Five Common Budget Mistakes and How to Avoid Them

Budgeting is something that most of us learn about in grade school and don’t recall it comes to crunch time and we realize that unless we take the reins and take control over the finances it could quite simply cause our personal finances to come crashing down. When making a budget, many people make mistakes but constantly tweak the budget until they find the right combination of savings, expenses and debts which must be repaid.

Avoid these mistakes in order to make your financial plan easy to follow:

Mistake No. 1: Not writing down and Defining Your Budget

A budget may sound great while you calculate the options for your income in your head, but until you write it on paper – it can be difficult to make these ideas come to life and begin to increase your personal financial health. Take the time to write your budget down on paper, or simply create a spreadsheet which can easily be accessed, changed and updated with the available funds or changes that you have made to make the budget easier to follow.

Mistake No. 2: Not Planning for Surprise and One-time Expenses

Planning for the unexpected is an essential way to ensure that you are prepared for whatever it is that life throws at you and so you don’t have to resort to payday loans. Whether you have a pet that needs an unexpected trip the vet or medication to purchase for your child, these expenses can be confusing when you have not allocated for these expenses that can change from month to month.

Mistake No.3: Not Budgeting for Contributions to an Emergency Fund

An emergency fund is an essential part of creating a healthy financial plan that allows you to maintain comfort in the time of a job loss or illness within the family. There are many situations that can cause the unexpected expenses to wreak havoc on the finances – having an emergency fund allows the consumer to prepare for these situations and therefore allow the consumer to have an alternative to expensive interest rates when choosing to finance the expenses with a credit card.

Mistake No.4: Not Changing the Budget

Each month the budget should be reevaluated and changes should be created if you find that you are spending more in one part of the budget, or less in one part of the budget. If you are unable to make the budget balance and have your income get into line with your expenses than it may be time to consider taking on additional hours or finding a way to up your income.

Mistake No. 5: Leaving Income for Spending without Budgeting

Every part of the budget should be accounted for, just like every dollar of the income should be accounted for. Any excess over the expenses should not be spent as a little something extra for the consumer it should be used towards savings and investments and establishing the emergency fund. Tweak the budget to accommodate the influx of income and determine where the money should be allocated.

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  • Great tips! These are things that I really don’t always think about when creating my budgeting plan. I think that the biggest mistake that I make is Mistake No. 5. I never plan enough for just fun, or the unexpected things! Thanks again!

  • Money Advisor

    Hi,

    Cheers!

    My biggest one is #2 – I love surprises but not on this one…

    Thanks for dropping by πŸ™‚

  • Pingback: Avoiding Five Common Budgeting Mistakes with Weekly Envelope | Weekly Envelope()

  • Money Advisor:

    thanks for the list. BTW, I recently came across a very interesting concept regarding the size of your emergency fund (probably it was published on Get Rich Slowly): the percent rate of unemployment should be the number of months worth of usual spending (i.e. no expensive gifts or round-the-world cruises, etc) you have in your Emergency Fund. Makes sense, doesn’t it?

    PS. Hope you don’t mind that I’ve commented upon your list on our blog: http://blog.weeklyenvelope.com/avoiding-5-budgeting-mistakes-with-weekly-envelope/

  • Money Advisor

    Hi Matt,

    It does make sense – some experts recommend you to have 6 months monthly spending (that is, for a basic but comfortable life) in your emergency fund.

    It seems like a lot of money, but I guess safety net is everything, especially today.

    Thanks for referring to my blog post – As long as you credit this blog, I’d be more than happy to share my thoughts with you πŸ™‚

    Thanks!

  • After reading through the article, I feel that I really need more information on the topic. Could you suggest some resources ?

  • Money Advisor

    Well, LinkedIn is a great resource πŸ™‚