Common Mistake #1: You Made a Mental Budget
Most of us have been guilty of this common mistake: The mental budget is good in theory and absolutely horrible in practice. Essentially, a mental budget is keeping your budget in your head and not using any tools to help. This is a mistake because you simply will loose track of your budget. It’s easy to forget to record those minor expenses such as a quick cup of coffee or an impromptu bite to eat.
Solution: Make an Actual Budget
Make a physical budget using the tools at your disposal (computer, smartphone app, pen & paper). We recommend looking up the best budgeting software and using it because there is likely a solution on the market that can fit your needs. Use your past month’s expenses as a base and proceed to make your budget. Over time, you’ll notice the true costs of your expenses which will allow you to plan your life accordingly. Go you.
Common Mistake #2: You Don’t Account for Unexpected Costs
Did you read, “true cost of your expenses” and think to yourself, “Gee whiz, what did they mean by that?” If you did, what we meant by this mistake was not accounting for unexpected costs in your budget. For example, these costs are paying for a birthday party, buying your spouse an anniversary gift, taking a weekend vacation, etc. Any expense that takes money out of your pocket that you didn’t account for on your budget is an unexpected cost.
Solution: Add These Costs to Your Budget
After you are aware of your unexpected costs, be sure to add your findings to your budget. This way will make sure that you are always prepared for the unexpected.
Common Mistake #3: Setting Unrealistic Goals for Your Budget
The point of making a budget is so you can become aware of ways you can save money and learn your spending habits. Often times, people will set aside a certain amount of money in their budget for certain categories (food expense, extracurricular activity expense, etc.) and set goals as to how much they want to spend on any given month. A big mistake people make is setting an unrealistic goal for their budget. For example, if you are already spending $300 dollars on entertainment per month and you set your goal for $50 dollars per month, you probably won’t achieve your goal – at least not initially.
Solution: Set Realistic Goals
It’s time to look ourselves in the mirror and be honest with ourselves. Budget realistic goals for yourself and work to improve gradually. For example, if you’re paying $500 dollars per month on groceries, set a goal of spending $475 dollars per month on groceries. If you are successful, then you can slowly lower your grocery budget over the course of a few months and see how much you are really capable of saving on food costs.
Common Mistake #4: You’re not Budgeting for Fun Activities
Sure, you went ahead and budgeted for setting up the mortgage escrow account but forgot to budget for going out to the movies and other entertainment expenses. That’s a big mistake because you need to budget for fun activities to keep yourself motivated to budget.
Solution: Budget for Fun Activities
You seem like a person that enjoys going out on the town with your friends. So why don’t you add that to your budget? You can use budgeting for fun activities as a way to motivate yourself to watch your expenses, so you can save money and spend it on yourself!
Common Mistake #5: You Make Your Budget too Complicated
Go easy on yourself! There’s no need to have a budget that a NASA scientist can’t follow. A common mistake people make is over-complicating their budget.
Solution: Simplify Your Budget
If you can combine categories, then do it! For example, you can combine your electric bill, your water bill and your cable bill under one category called utilities.
The easier your budget is to work with, the more likely you are to follow your budget! Therefore, do yourself a favor and simplify your budget so it’s easy to work with.
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