Does the word “budget” make you cringe? Have you created countless budgets only to see them fail miserably? Don’t worry, you’re not alone. Many people make the same, common mistakes that cause their budgets to fail. Here are some of these mistakes and ways that you can make sure your next budget works.
You Made Unrealistic Projections
The first major mistake is making unrealistic projections for yourself. You know yourself better than anyone. Are you really going to be able to cook dinner every night instead of going out to eat? Are you going to be able to tell your friends ‘no’ when they invite you to go see a movie or do some other activity that may cost money that you didn’t budget for? Don’t doom yourself to failure from the beginning. If you make a really strict budget that will be very difficult to follow, chances are, you probably won’t follow it.
Solution: Instead of going straight for the severe budget, ease into it. Start small and make sure your budget is realistic. Instead of cutting out certain activities, like dining out, completely, just cut back a little bit at a time. If you find that you can follow your budget, you can get a little stricter each month.
You Didn’t Set Any Goals
On the other hand, having a laissez-faire budget is also unlikely to bring you success. If you don’t set any targets for yourself, it’s hard to get anything accomplished. A broad goal—“get rich quickly” or “save as much as I can”—is also not likely to help you stay on budget. Even paying off all your debt and saving up enough money to buy a house are too broad of goals.
Solution: Come up with specific goals for yourself. Determine an amount you want to save within a time period, like $200 each month. You can even set mini-targets within that time period to help keep you on track. Putting a number and a timeline on your goals will help you achieve them.
You Aren’t Keeping Records
There’s no point in creating a budget if you aren’t going to write it down and keep track of what you’re spending and saving. Keeping track of what you’re spending in your head is a budgeting method likely to fail. Being lazy and only updating your budget every couple of weeks is also not helpful, since expenses can add up and break your budget before you even know it.
Solution: Pick a record-keeping method that’s best for you—whether it’s a spreadsheet in Excel or, if you’re not so tech-savvy, on pen and paper. Create a written budget, and update it at least once a week, if not more. The nice thing about keeping your budget in Excel is that it will do the math for you. The benefit of keeping a budget on paper is that you can take it with you wherever you go and update it more often.
Your Budget Has No Flexibility
You should try your best to follow your budget, but don’t go crazy over spending the exact amount in every budget category that you made for yourself, because that’s just really difficult. Life is unpredictable. Maybe you are invited to more dinners than usual in one month and spend more on dining out. Then cut back on your groceries spending. Maybe you drive your car less and don’t spend as much on gas. Then maybe you can put the extra money toward your student loans or toward savings. The important thing to remember is that it’s your budget and you can do with it what you like. So be flexible. If you spend more in one category, adjust another. Just make sure you’re always conscious about how much you’re spending. Adding a category entitled “miscellaneous” for those expenses that you can’t foresee is also a good idea. If you don’t end up spending that money, put it toward your savings.
In addition to making changes as you go, it’s also a good idea to take a step back and look at your entire spending every couple of months. It helps to see what areas you are spending more in, what areas you are spending less in and what areas you can cut back on.
You Don’t Have An Emergency Fund
A “miscellaneous” category is not the same as an emergency fund. A miscellaneous category is for small expenses that don’t have their own category—like buying birthday presents, medications or other one-time costs. An emergency fund is money you set aside for larger expenses that may hit you by surprise. This fund will take some time to build up. While you might not have a fund right away, you should still put some money toward it each month. A major, unexpected expense, like a huge medical bill following a soccer injury or maintenance on your car, can put a huge dent in your budget. Plan for the unexpected to make sure you’re never faced with something that will completely blow your budget.
Before you jump right in, you could try recording all of your expenses for a few weeks or months first. Then you’ll have a better idea of your spending habits and you can create a realistic budget for yourself. The most important thing to remember is that this is your budget and you can make it fit your lifestyle.