Let’s face it: budgeting can be a real tedious chore. Yes, there are some major advantages that come with establishing and sticking to a budget, such as better financial stability in both the short run and the long run. Even despite these financial advantages, keeping a budget can still be a hassle, especially if you’re not familiar with how to budget or if you don’t really have a head for numbers.
There’s more at stake than just your boredom or confusion, though. Taking missteps with your budget can lead to some serious consequences, and in ways that you might not expect at all. In order to make it easier for you to avoid such problems, here are 7 of the worst budgeting mistakes you just can’t afford to make, along with ways to avoid these mistakes in the first place!
1. Not Having a Budget in the First Place
We get that budgeting is a challenge. It can also be emotionally disheartening, especially if you discover you’ve got much fewer resources at your disposal than you previously thought. But not having an established budget in the first place means flying blind – and that can lead to getting yourself into some very hot water when it comes to debt or the inability to pay your essential bills.
2. Not Taking Income Tax Into Account
It sure is easy to just take your annual salary and divide it into 12 to figure out how much money you can afford to spend per month, isn’t it? It would be, except that your salary isn’t what you get every year. Thanks to income taxes, you’ll receive significantly less; you’ll need to use your net after-tax earnings as the figure you plug into your budget if you want to have accurate budget numbers.
3. Not Putting Aside Cash for an Emergency Fund
Even all the most careful financial planning in the world can be erased in a moment in the face of an accident or emergency. A broken washing machine or clothes dryer can set you back hundreds of dollars to repair or replace, for example. Not having an emergency fund or financial cushion to fall back on could be disastrous in such an event. A good rule of thumb is to have short-term savings equaling at least three months of your normal monthly living expenses at any given time.
4. Not Including Entertainment Expenses in Your Budget
Budgets are for all aspects of your life, not just work and bills. This includes entertainment expenses as well. No one is expecting you to sit at home and read the back of your breakfast cereal box whenever you’re not at work. Include some space in your budget to accommodate a trip to the bookstore, a night out with friends, or other fun activities. To not include that in your budget is otherwise unrealistic – not to mention unwarranted self-cruelty!
5. Not Revising Your Budget Periodically
Budgets are not fire-and-forget; they’re living, breathing entities. Setting a budget in place and then just adhering to it blindly without revising it when your financial circumstances change isn’t going to help you much in the long run. Take the time to re-evaluate and adjust your budget at specific intervals to avoid this! If you get a raise at work, for example, you’ll have more money to work with, and that means your budget can be expanded to increase your spending or savings activities as a result.
6. Not Finding Easier Ways to Monitor Your Budget
Budgets are not fire-and-forget; they’re living, breathing entities. Setting a budget in place and then just adhering to it blindly without revising it when your financial circumstances change isn’t going to help you much in the long run. Take the time to re-evaluate and adjust your budget at specific intervals to avoid this! If you get a raise at work, for example, you’ll have more money to work with, and that means your budget can be expanded to increase your spending or savings activities as a result.
