Want to win with money? Avoid these 5 common budgeting mistakes.
1. Using Hindsight Instead of Foresight
In your car you have a windshield and a rearview mirror. There’s a reason why the windshield is so much bigger; you’re supposed to keep your eyes forward. While it’s important to glance back once in a while, you won’t make it very far if you're only looking backward.
This is a common mistake I see when it comes to budgeting. Many people budget by looking back at their month to see how much they spent. While it is important to look back at your spending, this can’t be what drives a budget. Doing a budget this way means that if you’ve overspent, it’s too late to fix it.
Look at your budget through the windshield. This means doing it at the beginning of the month before any money has been spent. How much will you spend on food? How much will you spend on rent and utilities? Once you have these numbers set, then you can monitor it as you go.
2. Only Using Ballpark Numbers
A budget doesn’t have to be detailed down to the penny, but it’s important to at least get your budget down to the nearest dollar.
When I first started budgeting, I would throw ballpark numbers down. I’d write down $100 for my electric bill, when it was actually $118. Or I’d allocate $50 for internet when the bill actually came out to $57. While this may not seem like a big deal, those numbers can add up fast. I was always wondering why my budget and bank account never seemed to balance.
Try to get as specific as possible when putting in your budget items. Pull up your last phone bill and see what it was. Round it to the nearest dollar and budget that amount. Not only will this ensure you don’t come up short at the end of the month, it’ll free up some extra dollars that you can use elsewhere.
3. Forgetting the Little Things
Ah, I hate the little things! This is where I struggle most when it comes to budgeting. You know when you go to the grocery store without a list because you’ll “remember” what you need? Yeah, that never works out. I always end up making a second trip back.
Things like birthdays and school functions can often slip through our minds when writing a budget. My wife solved this by writing everything down in a 12-month calendar. If it’s something that reoccurs every year, such as birthdays, she has it written down and ready. Then, as we budget for the month, we look through and see what we have ahead of us.
As you budget, you’ll learn the things that always catch you off guard. Start a list of these items on a sheet of paper or in your phone. Write them down and bring that list to every budget meeting. If you have “pet medication” written down, then as you’re budgeting decide if that’s something you need to include in the upcoming month's budget.
4. Leaving “Extra” Money in the Budget
You’ve finished budgeting every possible expense for the month and you see a beautiful sight. Leftover money at the bottom of the page! You should close up that budget and pat yourself on the back for a job well done, right? Wrong.
If you don’t make a plan for that leftover money, it will vanish. A little of it will wander away for a Wendy’s burger, while some of it will sneak out for that new pair of sunglasses. All I know is if it’s unaccounted for, it’s not going to be there at the end of the month.
Whenever you see that leftover number at the bottom of your budget, go back through and allocate it somewhere. Maybe you just assign all of it to be put into savings. Or, if you’re paying off debt, you direct that leftover cash to your credit card. Wherever you put it, it needs to go somewhere specific.
5. Treating Every Month the Same
Oh how I wish we could write one budget and reuse it for every month of the year. I mean, how much could possibly change month-to-month? Unfortunately, there's enough change to get us into trouble.
Every month comes with its own special expenses. There are months where Andi and I have a lot of “leftover” money to work with. Other months? Not so much. Our months can vary by hundreds of dollars sometimes.
Things happen. You may have holidays, school supplies, income taxes, HOA dues, and magazine subscriptions that pop up periodically.If you don’t plan for it, this can be really stressful. However, by sitting down each month and creating a fresh budget, you’ll avoid those bank account emergencies.
Budgeting is the foundation to winning with money. Without a solid budget, it’s nearly impossible to make good and steady traction toward your financial goals.
Feel like your budget is out of control? I’d be happy to help. Email me at email@example.com to schedule a consultation!
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