Top 3 Budgeting Mistakes
So you created a budget, planned for your bills, and stuck to it. But then you check your bank account balance and find that you are down to just a few dollars, and you are days away from being paid. How could this have happened?
Sticking to a budget can be difficult enough, but if you always find yourself wondering where your pay has disappeared to, you are regularly being surprised by unexpected bills, or you thought you had your finances under control and don’t know where you are going wrong, you might be making one of these common mistakes.
1: Counting a month as 4 weeks
There are 4 weeks in a month right? Well actually, that isn’t quite right. 4 weeks = 28 days. Most months have 30 or 31 days in them. What’s an extra day or two you might ask? It makes more of a difference than you might think.
If your budget assumes that a month is 4 weeks, and there are 12 months in a year, that = 48 weeks.
Say your weekly expenses are $500.
48 weeks x $500/week = $24,000 a year.
The problem here is that in fact there are 52 weeks in a year, not 48. That means an extra $2000 you will need to come up with that you weren’t prepared for!
2: You aren’t tracking your spending
The first step when you create a personal budget is to determine what your income is, and then calculate how much your regular expenses are. You can run into trouble when you underestimate the costs of all the little purchases along the way. Buying lunch, a bottle of water, a takeaway coffee, an ice cream at the beach. All of these little purchases can add up to far more than you realised.
One way to get around this is to have a set amount of your budget that is allocated to incidental expenses. You might have a separate bank account and card for splurging or withdraw a certain amount of cash that fits within your budget for you to spend through the week. This can also help you stick to your budget long term, as a savings plan that is too strict and doesn’t allow you to enjoy any spending money can have lower long term adherence.
3: Expenses you don’t really need
Maybe it’s an old digital magazine subscription, streaming service, or a fitness app you never use. Perhaps a contract has actually expired but the service provider has continued to bill you. These low-cost subscriptions may not seem like a big deal on their own, but just a few dollars a month adds up to a significant amount over a whole year. Combine the totals of all of these small recurring bills, and you might find that you have spend hundreds of dollars on products or services you didn’t use.
Carefully checking your bank statements and identifying any repeating expenses that can be eliminated is a great place to start.
Are you forgetting about what you really want?
It can be easy to get caught up in the moment and indulge in purchase behaviours that make you feel happy short term, but sometimes this can get in the way of you reaching your long term goals. When you weigh up costs and benefits consider whether a larger purchase requiring longer-term savings would impact your life more positively, or whether the convenience of frequent smaller purchases will make you more satisfied. There’s no right or wrong answer, and everyone is different.
However you choose to spend your surplus income, making a conscious decision about the outcome that would benefit you most is important, and may help you to stay motivated and on track with managing your money. Saving simply because you “should”, or just to have money saved might not be a strong motivator for you. Working out your own personal why can help clarify your reasons for having a budget, and optimise your chances of success in the long run.