You have been spending like a sailor and now you find yourself without any money? Or perhaps you or your family member have lost a job and you need to cut your expenses?
Whatever it is, you know that the time for budgeting has come. You will have to adjust your spending according to your income and it may take a few months before you actually learn the ropes and manage to save some money.
When budgeting, many people tend to make mistakes that destroy their efforts and discourage them from persisting on their budgeting journey.
Here are the five most common mistakes you should avoid while budgeting.
Not having a plan
Have you ever been on a diet? If the answer is yes, you know how much discipline it takes to know the number of all calories you eat.
Similarly, you cannot stick to a budget if you have no idea what you are spending your money on. If you really want to be honest with yourself and get the most out of your budgeting, you have to make a budgeting plan and keep track of each purchase you make, big or small.
Before you start budgeting, you need a sound plan that will cover each aspect of your finances. Also, each night before you go to bed, try to make a list of everything you have bought that day. Alternatively, you can carry a small notebook everywhere you go or use a financial app so that you can jot down everything while it is still fresh in your mind.
Furthermore, try to avoid buying on impulse. As inexpensive as your impulse purchases may seem, when they add up, they can cost you hundreds of dollars a year. Be it chewing gum or candies, it would be much better if you bought them in bulk.
Even though you think this may turn you into a budgeting robot, there is no other way to know when you have gone off track. Be responsible for your spending and stop lying to yourself.
Not allowing for any wiggle room
It is okay to budget, but you always have to make room for unplanned expenses. You can’t plan each aspect of your life in detail, which means that you have to improvise from time to time.
When something unexpected happens, good or bad, it may throw your budget off. Your best friend may decide to marry next month or you may need to repair your car. Whatever it is, a significant part of your budget will be used to cover these expenses.
As much as 60% of Americans experience a major unexpected expense every year. If you allot at least $50 a month for surprise costs, you will stick to your budget much more successfully.
This is why you need to think about unexpected things and plan accordingly. You can open a savings account for emergencies or just keep a certain amount of buffer on your savings account.
This way, even if something unexpected happens, you will be able to deal with it with calm and ease.
Being too frugal
Remember when we said that budgeting is similar to dieting? Well, guess what ‒ it still holds true.
If you deprive yourself too much, you will definitely binge later and destroy everything you have done that far. You have a very simple choice: treat yourself occasionally or experience a spending binge. This is human psychology and there is nothing you can do about that.
If you are making dinner for your friends, buy a bottle of fine wine. There is a difference between buying on impulse and treating yourself every once in a while. It is okay to loosen your wallet once a month.
Remember: If you are too rigorous about your budgeting, a day will come when you will have enough of it all and blow $1,000 on a single night.
Taking out a payday loan
Don’t take out a payday loan. Ever. Payday loans should be your last resort, and here’s why:
- Even though payday loans are unsecured (they require no collateral), they can easily get you into a debt cycle.
- The average APR on payday loans is about 400%. The loan is to be returned on your next payday. If you fail to return both the loan and the rates, the lender will charge you the rates, and you will need to pay back the entire amount next month ‒ the loan plus the rates.
If you are on a budget, you simply have to avoid payday loans at all costs. Failing to pay off this type of loan on time will get you into a debt cycle and throw out of the window everything that you have managed to save. You can find more information on that here: https://www.elitepersonalfinance.com/payday-loans-vs-installment-loans/ Avoid payday loans at any cost.
There are other types of loans like personal loans, installment loans, P2P loans and so on. If you really need a financial infusion, take your time to research all your options and you will surely find an affordable loan.
Quitting too soon
You will probably need a few months of budgeting in order to become really successful at it. Again, discipline is the key word here.
We live in a culture obsessed with instant gratification, which thwarts many of our goal-oriented strategies. This goes for budgeting as well.
You can’t master budgeting in a couple of days. As the matter of fact, you will probably need a few months of tweaking, messing up and readjusting to make your goals attainable.
Budgeting is a process, and that is why you need to commit to it long-term. Not every month will be the same, let alone your evolution over the years.
Therefore, it is important to know that there will be ups and downs on your budgeting journey. Don’t let the downs make you quit too soon.
Budgeting is not easy and we congratulate all of you who have decided to take this step. It takes responsibility, patience and persistence to be successful at budgeting, especially in the consumerist society we live in.
If you follow the tips we listed, you will be on the right track to achieving your budgeting goals and acquiring financial discipline, which you will find extremely valuable in your future life.