If you planned out to start 2014 with a budget, you are not alone. Last year nearly half of all Americans were unable to afford basic need bills such as medical car or housing and 1/3 were living day to day having no savings. Although, most of their financial hardships aren’t due to spending habits, but instead simple money mistakes most of us also are guilty of. Here are 4 things to avoid while preparing and following a budget.
- Too Much or Too Little
Often careless spending can get out of hand so budgeting is a must for managing your expenses well. When you have a well-planned budget it is nearly impossible to lose track of all the impulse or unnecessary purchases you may make and also give you a look at your unique spending habits.
Although spending behavior is does play a factor in your budget, it is not always the cause of the difficulty in sticking to one. One reason people find it difficult to stay on a budget is, they either track too much or too little. By having a vague budget with only significant, expected expenses could lead to undercompensating and overspending. On the other hand having a budget that is too detailed could leave you tired of even doing your budget. Finding the middle ground for your budget tracking is actually as easy as checking your habits, such as do you purchase something on a daily basis or is it a rare splurge. If you do purchase it on a daily or weekly basis the item should be added to your budget.
- Planning Ahead
Another common pitfall for budget trackers is failing to plan ahead by accounting for those expected expenses like your car payment or mortgage. Placing these expenses at the top of your budget allows you to see an estimate of what you finances look like once you have subtracted these expenses. If you have an emergency fund that you pay into or a savings account that you place money in on a monthly basis you should also include these as an expected expense.
Having an emergency fund is highly recommended and experts say that you should have at least 6 months of living expenses in such a fund. This allows for sudden and costly emergencies.
- Too Strict or Not Specific Enough
You should be specific not strict in your budget. Allow some room for miscellaneous purchases. Organize your budget in to categories such as:
Needs: mortgage, car payments, groceries, etc.
Wants: cable, cell phone or other optionals you have
- Don’t Give Up
Giving up is the most common mistake made when budgeting. Creating the routine and sticking to it can be very difficult, so give yourself some room to make mistakes. Allow yourself to be able to make adjustments as life is continually changing, this is the best way to find out what works for you. Just don’t give up!