A budget is an important part of managing your finances. However, if you have never set up a budget before, there are several errors you could easily make. Here are the 10 most common budgeting mistakes:
1. Not Having One
The most common budgeting mistake is not having a budget. A budget takes time and effort to set up. While going over your records is time-consuming, the harm in not having a budget makes the effort well worth it.
2. Thinking That a Budget Limits Fun
Having a budget doesn’t mean you eliminate all unneeded expenses. Budget 5 to 10 percent of your income (if able), to use on hobbies and miscellaneous entertainment expenses.
3. No Emergency Fund
Auto repairs and home repairs happen and should be budgeted for. Monthly contributions to an emergency fund help you prepare for life’s random emergencies.
No guessing, rounding, or assumptions about what you have, or what things roughly cost. Without exact figures, you cannot have an effective budget.
5. Discounting the Potential to Earn More
Many budgets only focus on reducing expenses and while this is valuable don’t forget to look for ways to increase your earnings.
6. Not Recording Annual Bills
Bills such as service renewals, insurances, and memberships often have yearly renewals and are charged annually. Don’t forget to account for these non-monthly expenses and divide them by 12 to calculate them on a per month basis.
7. Not Taking Taxes Into Consideration
Many people mistakenly budget for their income before taxes, and not after. Always base your budget on your take-home earnings, after taxes have been paid.
8. Negotiating Existing Bills
It’s very easy to overpay on common expenses such as cell phones and cable. When budgeting, contact your service providers for possible discounts, packages, and contract extensions to decrease costs.
9. Not Updating Your Budget Regularly
Situations change. Always update your budget for new expenses, new income sources, and raises.
10. Not Employing Existing Tools
There are numerous tools out there to help with budgeting. Take advantage of tools such as templates, software, and budgeting apps.
Writing a budget should not be done quickly. A good budget takes time and effort. By carefully reviewing information, and reviewing your financial records, you can assure your budgeting is effective, and most importantly accurate.
Edward L. Taylor Jr currently serves as a Clayton County Business Banker with Heritage Bank. With over 15 years of experience in the banking industry, Ed can provide you with the best business products and services to serve your needs now and well into the future.
Vice President Business Banker • 770-515-7032 • [email protected]