5 Budgeting Mistakes to Avoid

By Staff Reporter - 20 Nov '21 12:29PM
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  • 5 Budgeting Mistakes to Avoid
  • (Photo : Steve Buissinne from Pixabay )

Budgeting can be overwhelming, but it doesn't have to be. With a budget in your back pocket, you can reduce stress and work toward your financial goals. Analyzing your finances and expenses can help reduce headaches and poor credit scores in the long run.

Check out these five budgeting mistakes to avoid and review your own habits. When you've got a better grasp of the challenges associated with budgeting, you can sort out how to fix them. Once you know what mistakes you're most likely to make, you can head them off and create your best budget.

1. Winging It

Just as in life, without a plan, you are almost destined to fail. Sometimes, your gut instinct is on point. Usually, however, it isn't when it comes to tracking your expenditures. Avoid unnecessary debt and despair by developing a budget and monitoring your expenses. A budget doesn't have to be a high-level accounting ordeal.

Bucketing expenditure categories across essentials, savings/financial goals, and fun is something you can easily accomplish. The 50/30/20 budgeting approach uses those categories, for example. As long as you stay within the set threshold against your monthly income, consider yourself on target. It doesn't matter if you spend $100 at Starbucks in a month. If it fits in your 30% category for fun, then you can feel good about your budget.

For a more finite budget, use the balanced budget approach. You can drill down to specific line items like streaming subscriptions, cell phone bills, groceries, etc. This approach requires more effort and tracking on your part. However, you'll have a better idea of habit or inflation changes and their impact on your wallet. No matter your choice, finding a budget that works for you and sticking to it is essential.

2. Waiting to Review Your Expenses

So you've got a budget, and you know what your targets are. You're good, right? Not so fast. Tracking your actual spending is really what matters when it comes to budgeting.

Make an appointment with yourself to review your expenses each week. Using a compressed time, like a 30- or 60-minute lunch break, can help you quickly execute this task.

If you find that you've overdone it in some categories, forgive yourself - but learn from the experience. Sometimes certain categories balloon up. What's important is that you pay attention now so you are able to balance your accounts at the end of the month. If your grocery budget has ballooned because you hosted a cookout, for example, consider how you can adjust other categories.

Using a debit card allows you to enjoy the convenience of digital payments while avoiding taking on debt. Because debit cards are connected to your checking account, you aren't racking up a balance you'll have to pay later. And a debit card's app should help you with your expense-tracking efforts by keeping tabs on debits from and credits to your account.

3. Swiping Without Thinking

Digital payments and credit cards make life so convenient. They also take away much of the emotional aspect of handing over cold, hard cash. Studies have shown that you feel the impact of cash spending more than swiping a card.

Pay close attention to how much you're spending by reviewing your receipts at the end of a shopping excursion. Lay them out and review what you've spent to see whether it's in line with your weekly budget in that category. If it's more than you planned for, update your budget right away. Addressing the overspending promptly can help you stay on track for the rest of the month.

Pay attention to categories where you have higher expenses for the month than others. For example, you may spend more on gifts around the holidays or months where you have friends' birthdays to recognize. Adjust your monthly budget accordingly to plan for these additional expenses.

4. Not Using Auto-Pay

A big hurdle with budgeting is often the amount of brainpower and hands-on time it takes. Treat your bank and all of its features as your personal finance assistant. Many institutions offer convenient features like autopay, account alerts, and direct deposit. Make sure you are leveraging the free features to your benefit.

Autopay allows you to designate parties that need to be paid and set the schedule, amount, and frequency of payments. You'll be on time with your obligations, and you can be confident that your payment method is secure.

Remember to review the amount of time your bank states your payment will take to reach the entity you're paying. Some payments arrive within a day or two; others may take longer.

For example, a small local electric company may not be set up to take digital payments. In these cases, your bank will have to issue a check. It may take up to seven or 10 days to arrive at your utility provider. Plan ahead and take into account these details so you can be on time with your payments.

5. Not Syncing Your Payments With Your Paychecks

You may get paid weekly, twice a month, or even just once a month. Are you doing all that you can to match up your bills with times you have money coming in? Some bills have a standard due date across the category. Mortgages and rent are usually due by the first of the month. Other bills are locked in by specific entities.

You may be surprised to find out that you can request specific due dates for some of your bills. Credit card issuers often allow you to choose your due date. You can make this change by logging on to your profile online or calling the customer service line. Typically, you can set your due date for any day from the first to the 28th of the month.

When you first make this change, it usually will become effective within a couple of payment cycles. This change does not buy you additional time on your current bill. It does, however, allow you to sync up your payment dates with when you bring in income.

Using this strategy, you can develop a more even budget. This way, you won't be drawing down your entire balance when all of your bills come due in the same week.

Becoming a Budget Master

With an effective strategy in place, your budget will work for you. Instead of thinking of a budget like restraints on anything fun, think of your budget as a permission slip. This permission slip gives you the go-ahead to execute your plan.

Take time to plot out your budget and think ahead for potential challenges. When you think beyond the day-to-day management of your money, you'll become a budget master.

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