One way to get the most out of your money is to use a budget. When you design and use a budget it shows you exactly where you money is going and how much you have to spend on your daily expenses and monthly bills. People make many common mistakes when designing their budget. Here are some of the common budgeting mistakes.
Many people don’t factor in yearly expenses into their budget. Car insurance is one such yearly expanse as is your property insurance if you have your own home. These are big expenses that can really make a dent in your pocketbook. You must budget for everything in your life including the expenses that only happen every so often like car insurance renewal. Make a list of every expense that you have and be sure to include these in your budget.
One expense that many miss on their budgets is the small day to day expense. Let’s say on the way to work you buy a coffee each working day for the month. This seems like a minor expense but if you add up those dollars the expanse is actually quite high and it belongs in your budget. Failure to recognize these little expenses doesn’t give you an accurate picture of where your money is going. Be sure to include everything even that cup of coffee you buy.
For a budget to work well you need a plan. A budget should be working toward some end goal. Maybe you’re saving for a trip or you are planning for retirement. Even if your goal is to just figure out where your money is going you need a plan. Without a budget plan you’re not making the best use out your budget. The numbers on the screen or in your book must mean something to you. With a plan you’re going to stick to the budget more as you see down the road what the budget can bring you. Have a goal in mind and then stick to it when you write the budget.
A good budget needs money set aside each month for expenses that just occur without warning. Maybe your car stops working or your washing machine dies. These expenses aren’t planned for but they still happen and you need them to be included in your budget. Put aside some money each month into a category called “unplanned expenses.”
Your budget needs to be flexible. You need to take money from one part of the budget and put it into another part when you need extra funds. For example you can cut back on entertainment if your child needs new shoes. If you do this you can free up funds when you need them in other areas of your life. A budget is meant to be changed to suit your needs as long as the fixed expenses like bills are always accounted for.
Your budget needs to reflect your current financial income. Don’t go over your head an build a budget that you can’t meet. The most important part of a budget is to be able to pay for your bills each month. Entertainment and other expenses are secondary. With a budget you can control your spending so you do have money to pay for the things that need to be paid for. You need heat but not that new pair of dress pants or a new gadget for your car.
You need your budget look at your past too. Make a note of expenses that have occurred in the past and anticipate them. If you go for frequent medical trips or have a lot of computer repairs then you need to be ready for these when they occur. Your past expanses can tell you a lot about any future expenses you might have.
Avoid Budgeting Mistakes
You can avoid budgeting mistakes if you take a good hard look at your expenses and write everything down. Remember to make sure you pay for the important things first and then work on everything else that’s secondary like your entertainment needs. A budget will let you know where your money is going and how much you have so use it wisely. As it’s an excellent financial tool, but don’t let it get too complicated – keep it simple.