Budgeting Mistakes You Might Not Realize You're Making
You've put in the work and started a budget that'll put some order to the chaos of your monthly finances. But even with all of your hard work, there may be a few budgeting mistakes that are holding you back. The good news is that these budgeting mistakes are simple to remedy once you know what to look for.
Here are some of the most common mistakes you may be making, along with tips for how to put them in the past and move your budget forward.
Planning for the Unexpected?
As of 2019, 29 percent of Americans have more credit card debt than emergency savings. When you're looking to manage your money, it's easy to focus on paying down debt and skip your savings altogether. It's a common budgeting mistake born from the best intentions.
To boost your emergency savings, start by putting a small amount into your savings account each month by adding a tool like EasyUp to your checking account. Every time you swipe your debit card, $1 is transferred into your savings account, making it easy to pay yourself back with every day purchases like groceries, gas, or your daily coffee run. The small savings will add up over time and on average, you could set aside an extra $300 a year just by daily spending habits. If you need to fix your car/pay a dentist bill/fund an unexpected school field trip, you can take money from the fund instead of charging it to a credit card or use it to pay off debt.
Forgetting to Price Shop
Recurring expenses like car insurance are easy to set and forget. If you've set up automated payments, it's likely that you're forgetting to price shop regularly to ensure that you're getting the best deal. You may be one of many Americans who is overpaying for their car insurance.
If you're making this mistake, all it takes is a little time to compare providers and get quotes. Whether it's car insurance or life insurance — or any other recurring expense where you have a provider choice, like your cell phone or internet plan — a little searching can free up hundreds of dollars in your budget each year. Those dollars can easily be re-routed to debt pay down or savings. Consider scheduling time once a year to comparison shop and find more affordable alternatives.
Not Prioritizing Periodic Expenses
It's difficult to forget your monthly bills, but it's a lot easier to ignore costs that only occur every now and then.
It's often easy to overlook periodic expenses such as:
- The quarterly billing for homeowner association dues.
- The semi-annual life or car insurance premiums.
- Season expenses like landscaping and/or snow removal.
Luckily, with a little work, you can make the shift and add these into your annual budget plan. This will help you adjust your budget for months where these bills are set to auto-pay.
Not Tracking Expenses
If you're going the guessing game route with your monthly expenses, there's no way your budget will be accurate. An effective budget requires a monthly review of expenses as every month has its ebbs and flows.
Do a detailed breakdown of your expenses for the previous month to help set your budget for the coming month. This way, you can create a flexible budget that accounts for life's financial fluctuations (like vacations, holidays, or periodic expenses) and approach each month with a realistic budget instead of one based on estimations.
There are plenty of online budgeting tools out there that make tracking your expenses and your monthly goals simple and easy to follow. Spending the time finding the right solution for you, and implementing that solution will go a long way toward finding the financial freedom you need, without sacrificing your savings goals.
Losing the Fun
Don't forget to create a line item in your budget each month for expenses that make your life bright. While you might not make it to a five-star restaurant three nights a week, you can certainly enjoy a night out with friends and family, or splurge on a family outing with the kids twice a month. Don't make the mistake of removing the things that bring you joy and help you connect with the people who matter most.
Creating an effective and accurate budget is all in the details. If you're not seeing the results you'd like, you may be falling prey to a few budgeting mistakes. With a few tweaks, your financial goals will be back on track before you know it and your budget will be working as hard as you are to bring the future you envision into focus.