Common Mistakes Made While Budget
Every person wants to live a financially stable life with a secure future. Earning well is important but spending wisely and following a budget is what helps a person feel confident about the future. Budgeting is an important technique to save money and prepare for a rainy day. In this article, we will be looking at some of the most common mistakes that we make while budgeting.
Not having a Goal
When you don’t have a goal to save up for, you won’t feel motivated to save money in the first place. Hence, the first thing is to have proper goals with regard to money and the future. Goals can be short-term and long-term. Short-term goals could involve buying an automobile or a vacation trip. On the other hand, long-term goals can include buying Real Estate or starting your own business.
After all, nobody wants to live the same old life working from 9 to 5. Having goals and something to look forward to is the first step toward budgeting your income.
Not Prioritizing what is important
Prioritizing is also an issue when it comes to budgeting. We often fail to prioritize what is more important and what is less important. One example of this is to buy a dress you see at the mall, not considering that you’re monthly credit card installment is due as well.
This will obviously increase your debt and will make you pay extra in the form of interest and late fees. So, prioritizing is the second most important thing to keep in mind while preparing a budget.
Not being specific
Not being specific about a few things, especially in monetary matters, can lead to a lot of trouble at times. Being specific and having the exact amount of each and every payment that we have to make is very important for us to avoid any inconvenience.
For example, you assume that your monthly bills will be around 50% of your income. Based on your mere assumption, you spend the other half of your income on leisure activities and don’t save up anything in the end.
The chances are that, once you spend the rest of your money, you find out that the bill amounted to 60% of your income due to the price hike in electricity bills and mobile bills. This will put you in a tight spot, and you will regret not seeing the bills yourself and not being specific about the amounts included.
Saving after Spending
According to Warren Buffet, one of the wealthier and most successful investors out there, you shouldn’t be saving what you have left after spending but spending what’s left after you save.
Saving should be the first thing we do after receiving our income. Once you receive your income and start spending, there is no coming back. You will not be left with anything to save at the end.
So, save a good portion of your income as soon as you get it, and then segregate your remaining income according to your liabilities and expenses.
Ignoring Medical Emergencies
We all are well aware that medical emergencies are unavoidable and always come unannounced. Also, one never knows how much a medical emergency can cost you. It can be as little as a scratch or as big as surgery.
So, it’s always best to save money separately for any kind of medical emergency. Rather than taking money out of your monthly expenses, it’s better to have money saved up for such kinds of emergencies.
Not occasionally treating yourself
When you earn a decent amount of money, it’s natural to want to spend it on yourself. After all, when you work throughout the month and get paid, you’ll want to treat yourself.
Treating yourself every once in a while is a tactic to satisfy your wants while also saving and budgeting wisely for other things as well. If you do not treat yourself every once in a while, you will get frustrated and eventually want to spend your entire saved amount. That’s a bigger loss than treating yourself to something nice every month.
So, treat yourself to avoid feeling frustrated. After all, everybody deserves a movie night or a little picnic with friends after a month’s hard work.
Forgetting your Annual Payments
While regular monthly payments are always on our minds, we often forget the big annual payments that we have to make at the end of the year. Be it an Insurance payment, mortgage of any kind, or online payments that are deducted at annual intervals.
These are crunch payments that we should be saving for at monthly intervals to avoid facing a burden at the end of the year. Dividing your annual payments into monthly intervals and then saving for them every month will help you be at peace at the end of the year.
Not Looking for Alternatives
Looking for alternatives also helps you budget for yourself. Suppose you really want to buy a dress online, but it costs a fortune. Maybe you can find something similar at a smaller local shop and at an affordable price too.
Part of you would want to buy the same dress you chose online, but a wise decision would be to go for the dress at the local shop. Saving that money can help you in many ways down the line.
Thinking about the alternatives to the things we want and use can also save us a fortune. Switching to a less costly item may seem like a downgrade in the short term, but you benefit significantly in the longer run.
Not revisiting your budget
Things change, and so does your budget. If you recently got a salary raise, you should change your budget. Similarly, if your monthly and annual payments have increased, you should change your budget. And if you have a new goal in life to achieve, you should change your budget.
This means you should occasionally revisit your budget. Calculate all the payments you have to make monthly and annually, all the savings you have to make and revise all the goals you have to achieve financially. This will help you be aware of any changes you have to make so you can promptly work on them.
So, to say the least, budgeting is a crucial practice that you should adopt to achieve your financial goals, avoid any unannounced emergencies, and spend your money wisely.
Earning well but not saving wisely would be the silliest thing that a person might do. It would be like spending all in a day and not having a single penny left for tomorrow. And at the end of the day, no one wants to experience that.
So, it is always better to save early on than not have any money in the end. Similarly, it’s better to spend wisely today so you can enjoy the benefits tomorrow, and this is only possible through budgeting.