Having and sticking to a budget is the most important thing that you can do for your financial health. It does not matter if you make $50,000 a year or $500,000, you need a budget. Here are the things that get most people off track when they try to stick to a budget.
1) Your Budget Does Not Exist
The single biggest problem facing most people is that fact that they do not even have a budget. If this is your problem, it is a very simple one to correct. Sit down and write one out. It does not take long and there are plenty of templates on the internet that will help you make one. Just do a quick search and choose the one that you like the best.
Personally, I like to use a simple spreadsheet to record monthly bills and set my budget. Every computer has one built in and a spreadsheet has the advantage of letting you quickly see changes made. Make a change to one part of your budget and the results will automatically be added up in your monthly spending total.
2) You Have Made Your Budget Unrealistic
Saving is important and cutting costs will serve you well, to a point. You need to make your budget livable so that you do not hate it. You need to be able to enjoy your life and live relatively comfortably. Can you survive on $50 a month in entertainment expenses? Sure, but you will not be happy. Can your family eat with just $100 a month in groceries? Not a chance.
Take 10 to 20% of your monthly net income and put it into savings and then divide the rest out among your other fixed and variable expenses. Leave yourself room to enjoy your life and you will be much happier. Also, in the first few months of living with your budget, be flexible. It will take some time to see where you really need to spend the money and where you need to cut back.
3) You Do Not Have An Emergency Fund
Emergencies happen. The car can break down or perhaps your dog gets hurt and will need to go to the vet. Most people lack a true emergency fund which is one of the reasons payday loan lending is so prevalent. Establish an emergency fund by placing a small amount of money into a savings account. Automate this task by using your bank’s automatic withdrawal feature. What you never see will never be missed.
4) You Carry Too Many Credit Cards
Credit cards make it far too easy to spend more than you are supposed to. Ideally, you should not carry any credit cards but if you must, carry just one. Mark it for emergency use only. You should never pay regular expenses with credit cards. I would even go as far as to say don’t use them even for points. There is a reason that credit card companies make those offers. They are not in the losing money business. They want you to spend too much and carry high balances.
5) You Buy On Impulse
Do you walk out of the grocery store with way more than was what is on your list? Do you find yourself with a full shopping cart on Amazon? You are an impulse buyer and you need to reign this in to control your budget. Luckily, their are tools that can help you. Grocery stores are a big problem for the impulse buyer. The stores place product to entice you into tossing it into the cart and this can lay waste to your food budget. Instead of going into the store, shop online and pick it up curbside. Most grocers are doing this now and it will allow you to put in your cart exactly what you need and nothing else.
6) You Do Not Save For Big Purchases
You know that you need to save for retirement and hopefully, you have at least 10 percent of your net income going into a long term savings account. But, what about the big purchases that you make throughout the year. Televisions, jewelry, etc. Open a short term savings account and contribute to it just like you do with your retirement account. The difference is that once or twice a year, take the money out and buy something fun with it, a luxury that does not fit into your regular budget.
7) You Do Not Stretch Your Budget
This means price shopping and looking for value. Perhaps you can turn your $500 monthly grocery budget into $400 if you price shop. Shop the grocery store sales and discount clubs. You can then take that extra money and put it into savings or just your entertainment budget.
There are dozens of ways to be frugal and stretch your budget. Shop your auto insurance around to other insurers, look for a cheaper cell phone plan or even an electric provider with lower rates. Every dollar you do not spend can be saved or moved to another part of your budget to make your life easier.
8) You Leave Something Out
Your budget should include everything that you spend and the month to month stuff is pretty easy to nail down. Don’t forget about the annual expense though. Are their HOA fees to be paid on an annual basis? Do your kids go to camp during the summer? You need to budget for them throughout the year or the sudden expense can throw you out of whack. Divide the expense up into 12 equal payments and deposit that money in a savings account to be used once a year.
9) Not Having A Goal
Having a goal can help you stay on track with that budget. Have a goal such as retiring at 60 or saving for a dream vacation. Goals will help you stay true to your budget when it becomes difficult or you get tempted.
As you can see, there are a lot of potential pitfalls when working with a budget. The key is to be realistic about your finances and to have goals. Keep your spending in line with your income and be disciplined enough to stick to your plan.