We all know we should be drawing up budgets – it’s personal finance 101. However, sticking to one can be difficult, and this is one of the many reasons people give up on budgeting. However, these difficulties tend to be as a result of the following common mistakes – but you can correct course.
Guestimating your monthly costs
When you first come up with a budget, you may not be too clear on how much to assign to various expenses. This means you make guesses and estimates, and hope the amount you decide to set aside is enough to cover everything. And then when it inevitably isn’t you imagine that budgeting just doesn’t work for you. However, this first draft isn’t going to be the budget you end up with. To improve your odds of success, start off with an idea of how much you’ve spent the last three months. Keep a record of your spending and at the end of this period, average the cost for each category for your budget. And as you go along, try to reduce the amount you spend under each category until you find a figure that works optimally.
Not tracking your spending
If you’re not tracking your spending, you’re not going to know when you’ve reached a budgetary limit, and you may find yourself undoing all the good you did when you started budgetting. You can either note down every shilling you use, or bank on the envelop method. With the latter system, set aside the cash you need for each budget item in its own envelope – so this could be for groceries, house shopping, cleaning services, fuel and so on. This helps you keep an eye on what you have available to spend and minimises the use of plastic. Which reduces the chances of your spending cash frivously. You can also use any one of a number of free mobile apps that help track your spending. Just find something that works well for you.
Forgetting to set aside fun money
Budgeting always sounds like such serious business that it’s easy to forget to set aside some cash for entertainment. To boost your odds of sticking to a financial plan, set aside some cash that you can spend as you see fit. You can use this money cor dinners out, drinks with friends or the odd clothing spree. Splurging without a plan could see you spend more than you can afford to.
Leaving out some categories
There’s spending that we do every other month that we usually don’t see the need to put down in our budgets. However, this kind of spending can mess up attempts to keep a close eye on the money leaving your account. To adequate prepare for these expenses, which include things like wedding gifts and funeral contributions, set an upper limit for what you’re willing to spend in a year, divide this amount by 12 to determine how much to set aside each month.
If you’re married or in a committed relationship where the financials are mixed, you can’t work on a budget by yourself. Come up with a list of expenses, share them out and try to stick to your end of the bargain. If this proves too difficult, you may consider both contributing to a central kitty, and then having only one of you manage the outflow of cash. Hold regular budget review meetings to keep everything on track and to ensure no one feels overwhelmed.
Varying your expenses based on income
If you’re an entreprenuer or you work on contract, it can be difficult to set a budget because your income isn’t regular income. But it won’t help to have your expenses vary depending on how much you’re able to earn in a given month – some months will be more difficult to get by than others if big bills fall due at the same time. To get around this, try and save up a certain percentage from all the cash you make until you can comfortably cover a month of expenses. And then work off of this account, and use a percentage of any new cash to refill it. This will make sticking to a budget easier and help reduce the number of times you find yourself unable to cover a month’s expenses.
Failing to build an emergency fund
An emergency fund holds the money you need to cover unexpected costs, like medical emergencies, car trouble or an appliance getting spoilt. This fund helps you avoid disrupting your budget. Build it steadly and try to avoid dipping into the cash unless it’s for a specific list of items that you’ve listed as emergencies.