One of the best things that you can do on your journey to financial freedom is to create a budget that works well for you.
It’s not enough to create your budget and just leave it there. There is so much more to it than just leaving a bunch of numbers on a piece of paper.
In reality, it takes a while to get your budget completely fine-tuned.
You may find that along the way you have missed off some expenses or that your numbers may not balance.
I would say that your budget is always going to be a work in progress.
There are some common mistakes that people make when trying to create a budget.
I’m going to take you through a few of them so that you don’t fall into the same trap.
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9 Budgeting Mistakes you want to avoid
Not having a budget in the first place
Without a budget written down on paper, it will be extremely difficult for you to see exactly where your money is going.
I appreciate that you know parts in your head but that just won’t do.
If you have a vision that you want to see manifest for your finances then you need to make it clear for ALL to see including your partner.
If you haven’t already done so I suggest you start budgeting right now.
You can get a copy of my free monthly budget worksheet by completing the form below.
Not working with your partner
Your budget can never work if you and your partner are not on the same page so to speak.
You need to have come together with an agreed budget to work towards.
It’s pointless in having a budget if one of you is not going to follow it.
I would suggest that you both sit down together and plan something agreeable between you.
Not tracking your expenses
It’s SUPER important to keep track of your expenses as you spend.
If you don’t do this it will be impossible to see if your budget is working or not.
You could set a time at the end of each day to spend 5 minutes jotting down anything that you have spent money on.
It probably won’t even take 5 minutes to do it.
Once you have done it you will be able to see if there are areas where you need to make improvements for the next month.
If you struggle with keeping on top of your expenses like I sometimes do then perhaps the cash envelope system will work well for you.
Not having a sinking fund
A sinking fund will save you so much regret later on.
With a sinking fund, you use it to pay for any large expenses that you have during the year.
For example that yearly payment for your home insurance that you dread each year.
All you would do with a sinking fund is take the rough cost of how much your home insurance is going to be this time around (use last year as a guess and add a bit on top)
Now divide that amount up over the next 12 months and each month put that amount safely away.
For example a yearly cost of $500 / 12 (months of the year) = $41.67 per month
Let’s face it we all dread these one off payments because as they get closer we find ourselves rushing around trying to gather the money together so that we can make sure we make the payment in good time.
Its a stressful situation but if you have a sinking fund the money will already be available to you so you won’t have to go into unnecessary debt in order to pay it.
You should do this for each expense that you have to pay for yearly.
If you have trouble putting away money each month try using Digit which looks at your spending habits and will happily put away a small amount of your money each day without you having to remember.
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Not having an emergency fund
An emergency fund is just as it implies, it is just for emergencies.
It’s a good idea to start with $1000.
The idea is that you put away or save toward $1000 that you keep in a separate bank account that you don’t touch.
This money is only to be used if an emergency were to pop up.
It’s not for things like going on holiday or buying a new car.
Emergency situations are things like your roof falling in or one of your children having to go into hospital.
Something completely unexpected.
Having an emergency fund readily available to you will help you not to fall into debt.
Not creating your budget at the start of the month
Every month your expenses could potentially change and you need to make sure that you are prepared for that.
At the start of each month, take a quick look over your budget again and make any necessary changes that you need to.
Don’t assume that each month your outgoings or even your income will be exactly the same as the month before.
Sometimes life happens.
Not paying off debt
It’s really important that you make sure each month you put aside money to pay off your debts.
Don’t simply leave your payments to fester from month to month.
If you truly want a debt free life then you need to plan for your debts as well as your usual everyday expenses.
Paying the minimum each month on a credit card is not going to cut it. You need to make extra payments on top of this even if it is only an extra $20 a month.
You will save yourself so much money in interest charges just by making a small overpayment each month.
No money to play with
As much as all you probably want to make sure your debts are being paid which a good thing, you also need to make sure that you have a little extra cash to play with too.
Without this money, the month could feel quite hard and before long your budgeting efforts will feel like a full on chore.
Having a little fun money could make all the difference to your spending habits.
It doesn’t have to be outlandish money, just enough to pay a visit to the cinema or go out for a nice dinner every now and again. Anything that keeps you feeling good.
Forgetting about the small items
This is an all too common budgeting mistake that people make all the time.
It’s easy to spend $5 at the local store, forget about it and never write it down.
Do that a few times and you will surely be left at the end of the month wondering what happened to your budget.
You can use your phone to take note of small purchases during the day and note them down at the end of the day.
Another way to keep track would be to have a miscellaneous section and keep that as part as cash in your hand
Once that money is finished you know you are done for the month.
You are much less likely to abuse money that you can physically see getting smaller.
Final thoughts on budgeting mistakes
These are some of the common budgeting mistakes that people make when starting out with budgeting.
I have personally made a few of these myself in the past.
It’s ok to make mistakes from time to time as long as you learn from them.
Keep going with your budget and soon it will become second nature to you.
Your journey to being financially free is finally in sight.
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