Maintaining a household budget for yourself or your family is fairly simple when you look at the nuts and bolts of it. You set up categories for income and expenses, fill them in after every pay or when+ you receive money, and deduct funds for bills, shopping, and other payments. Categories get added when new household items pop up, and some get removed when you determine they are no longer needed. In a way, a household budget is like a house itself — continuously getting remodeled as time goes by.
It seems easy, and yet there are come common mistakes made by those who regularly maintain the budget. Think of these like not turning off the water before removing a sink or covering the carpet before a wall gets torn down. They aren’t disastrous problems but they do take some time to clean them up. Here are three common budgeting mistakes people make that should be reviewed.
Not giving every dollar a name — At the time money is received it’s divided into the necessary budget categories. Sometimes in this process money is left over due to completion of a debt payment or an extra week in the calendar. Where does this money go? Well, certainly not into a category called Extra. Every dollar added into a budget should have a place, including the ones left over. However, many budgeters just throw this money into a miscellaneous section they use for an unknown purpose. This mistake needs to be avoided, because this extra money should be used to further pay down debt or invest in an emergency fund.
Taking from category Peter to pay category Paul — Sometimes there’s a miscalculation in the budget, leaving one category deficient in needed funds. In a quandary, those who maintain the budget end up taking money from another category they deem unimportant and feed it into the empty one. This is a big mistake, because they have to fill that category up in the next pay cycle, leaving another category deficient. In the end, there may be no way to catch up in the categories. Should a category require needed cash, consider removing it from the emergency fund instead.
One fun pile at the end — Another common mistake budget maintainers make takes place right before the next pay cycle when they realize there’s money left over in each category. Eyes wide, many of these people place the remaining funds into a fun pile and use it to go out to dinner or spend it on something they’ve wanted to buy. Unfortunately, this is about the time an unforeseen problem crops up that requires cash you no longer have, meaning they need to take a dip into the emergency fund. The best recommendation is to take any remaining funds and feed them into paying off additional debt or adding it to the emergency fund.