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Tips for avoiding these common budgeting mistakes – Forbes Advisor

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Editor’s Note: This article covers common mistakes you can make when creating and tracking a personal budget. We also have resources if you need to give every dollar a job to do in response to coronavirus (COVID-19) or if you need to budget as variable income concert worker.

You did it: you did the hard work of budgeting. Now you plan to stick with it on the path to your financial well-being.

But how do you deal with the “bumps” in your budget when they arise? Bumps can cause you to slip off the road if you’re not careful. However, with a little knowledge and planning, you can avoid budgetary vagaries and stay on the path to a better financial future.

Take a look at the following common budgeting mistakes. Once you know these mistakes and how to avoid them, you’ll have solid financial knowledge to help you make better decisions today, tomorrow, and for years to come.

Budgeting mistake # 1: skimping on emergency savings

If you only budget your monthly expenses and not your savings, your budget can be doomed from the start. Life happens when we are busy making other plans, and every reasonable budget needs an item for emergency savings. If you are one of the 39% of Americans who don’t have an extra $ 400 in the bank for unexpected “twists and turns” in life, you’ll put pressure on your overall finances trying to cover the costs.

To avoid this budgeting error, build your emergency savings a priority. Experts recommend an emergency fund of six weeks of your take-home pay, but you can start small to move your savings efforts forward. Try to set small, achievable goals first, like $ 25 per paycheck or 5% of your income. Then set a savings goal like $ 250. Once you’ve hit that savings goal, set a new goal.

To get the most out of your savings habit, compare savings accounts to be sure you get the best return on your money while keeping it safe. By creating attainable progressive savings goals, you’ll smile while you top up your emergency savings with an amount that will make you feel secure.

Budgeting Mistake # 2: Relying on Guesses

Creating a budget using guesswork leaves a lot of room for error. Bulletproof the budget starts with knowing what is your actual cost of living each month. And of course, it’s tedious to sit down with all of your invoices and recurring charges to get the exact numbers. These numbers are the key to a budget that works and grows with your household, your income, your dreams and your future.

To avoid this budgeting mistake, take an hour (just an hour) and keep track of all your monthly expenses. Start with your fixed expenses, like your rent or mortgage. Be sure to consult your bank and credit card accounts, including how much money you withdraw from the ATM in cash. Just one hour can help you make sure your budget is real and accurately reflects all of your monthly obligations.

Budgeting Mistake # 3: Not Tracking Your Spending

A budget is not a tool to be defined and forgotten. For a budget to be successful, it is essential that you diligently track where your money is going and what it is buying each month. If you don’t keep track of your discretionary spending, even the small purchases you make on coffee or a snack, you could be disrupting your budget.

To avoid this budgeting mistake, start small. Set a reasonable goal to track your spending for a month. This practice will give you a clear idea of ​​where your money is going. From there, you can make adjustments. You might even consider using budgeting apps to make it easier to keep track of expenses each month. The easier it is to keep track of your spending, the easier it will be to develop good budgeting habits.

Budgeting Mistake # 4: Not Budgeting for Wiggle Room

Every budget needs a little room to breathe. If you don’t create wiggle room in your budget, you could sabotage your budget with feelings of deprivation and discouragement when life’s financial vagaries arise.

To avoid this budgeting mistake, add a built-in cushion to your monthly budget up front. You can do this easily by adding a line to your monthly budget that represents between 5-10% of your total expenses. At the end of the month, you might not need all that money. If you do, you’ve built it in and there’s no sweat. If it turns out that it is extra money, you can use these funds to increase your emergency or retirement savings, or to pay off your debts.

Budgeting Mistake # 5: Suppressing the Fun

Living on a budget might seem like there’s no room for fun, but letting fun outside your budget could be one of your biggest mistakes. There is nothing wrong with wanting to repay loans and credit card as quickly as possible, but you also need the money that gives you time to enjoy the world beyond your budget. You deserve to have fun every once in a while.

To avoid this budgeting mistake, add some fun to your budget. Make “fun” a budget line and a budget for how much you want to set aside for things like a movie with friends or other activities that bring you joy. If you’re worried about having too much fun, start small and move up to a monthly number that gives you a balance between financial responsibility and a well-lived life.

Budget mistake # 6: forgetting your family

When you share a household, it is natural that you share a financial life with this person in some ways. It’s easy, however, to forget to talk about the budget when the hustle and bustle of everyday life occupies you both. Without frequent conversations about goals and a budget to help you reach those goals, spending can go wrong and progress can slow down.

To avoid this budget mistake, find a way that works for your relationship to talk about money on a regular basis. Maybe it’s a casual meal where you can share your goals and progress in a relaxed environment. It can be a shared spreadsheet where you and your partner track spending and spending. The key is to keep the dialogue going and identify potential budget issues before they have a chance to derail your dreams.

Even if you don’t agree on every aspect of your budget, a small compromise can go a long way in keeping your budget on track.

Budgeting Mistake # 7: Having Unrealistic Expectations

When you sit down to budget, it might seem like enough to fill all the numbers. You want to put money every month in your student loans and you want to pay extra for the payment of your car. But numbers on paper may not work in practice. Don’t sabotage your chances of budget success by being unrealistic about your expectations.

To avoid this budgeting mistake, set a time to review your budget each month. Be honest with yourself about why you may have missed specific financial goals. If you’re hitting all of your goals, ask yourself if you’re feeling helpless and missing out on things that brought you joy to save money. The best budget is the one that balances your lofty goals and the life you live every day.

A monthly review can help you set realistic goals and prepare for success as you hit them month after month.

Budgeting mistake # 8: not updating your budget

Maybe you are crushing all your budget expectations: your emergency savings are increasing. You have fun and don’t feel deprived. Yet no matter how far you are doing with your financial goals, every budget should be updated on occasion. It might be time to update yours.

To avoid this budgeting mistake, set calendar reminders to review your budget. Your ideal initial review interval might be at the end of the first trimester of your budget year or 90 days in. Make your exam schedule a schedule that helps you feel confident about your budget numbers.

It is also wise to review your budget anytime you are experiencing life changes. Getting a promotion, moving, or incurring an unforeseen major expense are all great times to give your budget once again the updates that might be needed. Whether you find that you can spend more or need to spend less, there is always a budget adjustment to keep your financial goals on track.

Budgeting mistake # 9: skipping retirement savings

You may have been so wrapped up in monthly spending and paying off your debt that your retirement savings have been abandoned. Even though retirement may seem like an event in the distant future, you’ll want to start saving now.

To avoid this budgeting mistake, make sure you take advantage of any employer sponsored retirement plans. Review correspondence with employers, especially for accounts like 401 (k) plans, to take full advantage of what is essentially free money. And don’t forget the different personal retirement savings plan options like IRA which can speed up your savings. Try to retire automatic savings, you are therefore achieving your immediate financial goals for the life you envision in your future.

Knowledge is power. Now you have nine common budgeting mistakes on your radar, along with tips to help you avoid them. As you move forward with your budget, remember that every budget is an integral part of your financial plan. It requires care and nutrition. Adjustments and attention. You and your budget are a team working together to design the present you need and the future you want.

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