Common Budgeting Mistakes That Prevent You from Getting Control Over Your Finances

Apr 03,2019 11:24   Source:ForexSQ

One of the primary reasons why many people give up making budgets is that they simply can’t seem to be able to make them work as they should. Since it is amply proven that budgeting can indeed have many benefits, the failure can possibly be due to some common mistakes that you might be making. Knowing what the mistakes are and getting over any misconceptions that you might have can help you to get control over your finances. Some very common budgeting mistakes:
Guessing Your Monthly Expenses
When you are attempting to make your first budget, you may have no clue about how much you are spending on various heads like rentals or mortgages, loan repayments, food, groceries and living expenses, transport, education, entertainment, dining out, vacations, insurance, etc. You should try and find out where your money has gone over the last three months or so to get a reasonably good idea of your spending pattern. While, for sure, you may find the results of the exercise shocking; some expenses like transport, medical bills, and credit card repayments are non-discretionary while others like groceries, dining out, entertainment, clothes, etc. can be curtailed. The trick is to reduce the expenses gradually because slashing them drastically is a surefire formula for disaster. If you have clocked up a number of debts, you can go in for debt consolidation, however, be sure to check out the debt consolidation ratings online before choosing the loan company.

Living Off Your Weekly Income

It is quite common for those receiving paychecks every week or alternate week to assign expenses as and when they get paid. In the weeks that you have large payments to be tackled like rentals, you may find yourself strapped for cash. This same situation may also be encountered if the dates of multiple payments fall due in the same week. The sensible way of balancing your income and expenses is to set aside certain amounts every week from your paycheck to cover the larger monthly expenses. Another way is to use your savings to pay for the current month’s expenses and reserving the entire month’s salary to pay for the next month’s expenses and so on. This process stabilizes your budget and can even cover temporary cash shortages that you happen to experience in any particular week. An https://www.forbes.com report on personal finance recommends allocating a third of your income each to living expenses, taxes, and savings.

Not Monitoring Your Expenses

Even the best of budgets will run aground if you cannot keep track of your expenses. It is imperative for you to be able to notedown every expense that you have incurred so that you know if you are within your self-imposed limits. Doing it on a daily basis is essential, as there is no use of discovering one fine day that you have no money left to buy groceries or food. Rather, if you have been overspending in any category, you should know and be able to pace yourself over the remaining period. Some people prefer to stick to the traditional pen to the paper method while the more progressive can use a wide variety of computer programs or smartphone apps that are readily available. The trick is to be comfortable with the method and not opt for a feature loaded tool that will invariably be also very complicated.

Not Accounting for All the Expenses

A budget will only work if you remember to include all the expenses that you incur; however, making sure that you have actually included all your expenses can be a herculean task. It is not uncommon for people to forget certain things that are so integral part of your life that they become invisible; for example, while you may not forget to include the cost of Christmas gifts, it is quite likely that you may not have a budget allocated for buying all other gifts around the year on account of various social obligations like birthdays, weddings, graduation, housewarming, etc. It is also very easy to forget about expenses that you incur once a year like insurance for the car, life insurance, annual maintenance for appliances, etc. If these expenses have not been budgeted for, finding the cash can be a problem and you will find yourself relying on your credit card to see you through. Try to identify all expenses and set aside some money every month that can accumulate to the required amount by the time the payment is due.

Not Creating an Emergency Reserve

Any budget, however carefully created, can be completely upset by the need to shell out money for an emergency like a sudden health issue or even a car breakdown. It is vital for everyone to create an emergency fund of a reasonable figure that you can dip into for these unexpected expenses. Personal finance experts suggest that the minimum amount in the emergency fund should be three months of expenses. Having an emergency fund is a great stress buster as you know you will not be caught out by an unexpected expense.

Not Allowing Yourself Fun Money

One of the most common reasons why people abandon their budgets is because they the find all work and no play situation impossible to carry through for long. In their enthusiasm, they may have left themselves with no budgetary allocation for entertainment; it is perfectly okay to go overboard once in a while provided that you have the money set aside for it and it is not paid by denying the payment for an essential expense. Estimate a reasonable amount and set aside some money every month to create a fun fund.

Conclusion
If you are a couple, it is essential that you have your partner onboard with the budget as, without the support, you will find yourself with a budget that is rapidly cracking up. It is very important for both the partners to be committed to the same goals and the principles of fiscal conservatism, otherwise, budgets simply do not work. It is also vital to be able to differentiate between needs and wants when allocating funds to your budget; putting too much pressure on your limited income by classifying wants as needs can cause the budget to collapse.

Author Bio
Daniel Ng is a freelance writer who has been writing for various blogs. He has previously covered an extensive range of topics in her posts, including business debt consolidation, Finance, E-commerce and start-ups.

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