Budgeting Blunders – How to Avoid These Five

Budgeting is simply a spending and savings plan, a tool for monitoring and managing your personal finances. People often struggle to create or stick to their budget. Steer clear of these budgeting blunders, to stay on track:

Missing Clear Goals

One common reason people struggle with budgets is they haven’t defined specific objectives. Having clear goals provides budgeting targets, something to strive for. They also offer a sense of purpose, which could motivate you to stay (or get back) on track.

Tip: Identify a few short and long-term financial goals. Break each one down into realistic, actionable steps.

Lack of Awareness

Not having a clear picture of your income and expenses, or an understanding of your spending patterns, will make it difficult to create a budget. Being cognizant of what is coming in and going out is a prerequisite for identifying areas where spending can be reduced or expenses eliminated.

Tip: Hold off on creating a budget until you’ve had time to assess your income sources. Track your expenses until you feel able to (reasonably) accurately estimate your budget spending categories.

Impulsive Spending

Spending in the spur of the moment (whether driven by stress, boredom, or the desire to keep up with the Kardashians) can thwart even the most masterfully crafted spending plan. Curbing spending habits that interfere with budgeting is crucial to achieving financial stability and building wealth.

Tip: Practice techniques used to increase discipline and control. Have a list of spending guidelines that includes a waiting period prior to purchasing. Look for low-cost alternatives to replace shopping when you’re idle or as a leisure activity.

Optimistic Math

Unrealistic expectations will eventually derail a budget. People frequently set spending limits that aren’t practical or reasonable and, as a result, can’t be sustained over time. Some overestimate earnings because they were relying on overtime or failed to account for the amount that would be taken out to cover taxes and insurance. Others forget to include annual, sporadic, or one-off expenses. Any of these miscalculations can lead to frustration with the budget and/or the process.

Tip: Expect the unexpected (create a category for it), leave yourself some “fun” money, and anticipate making numerous adjustments to both your budget and strategies, over time.

Failing to Adapt

Budgets require periodic reviews and modifications. It’s essential to make updates in response to life circumstances, such as getting a promotion, moving, or having a child. Not doing this will ultimately undermine budgetary efforts.

Tip: Review your financial goals and budget (at least once a year) to make changes that reflect shifting circumstances and priorities. Don’t forget to account for the impact of inflation and rising costs over time.

Stick With It!

Following a budget can be challenging, especially in the beginning. Lack of awareness, impulsive spending, optimistic math, or failing to adapt can cause budgeting problems. Understanding common calculation and implementation issues, in order to address or avoid them, will help set you up for success.

Start by increasing your awareness and setting financial goals. Keep the process simple, so it doesn’t become overly cumbersome. Be patient, flexible, and prepared to adapt.

Setbacks will happen and mistakes will be made. It’s okay. Don’t give up. If you make modifications and stay the course, before long you’ll be reaching new heights of financial health!

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