Around here, we define budgeting fulfillment as having the freedom and stability of financial options, clarity around what you want to accomplish, and the confidence to trust yourself in money decisions.
But here’s the thing — you very well could be making TONS of budget mistakes without even knowing.
Keep reading this post to learn:
⋒ 7 ways you’re destroying your budget
⋒ How to switch these mistakes with Budget Doctor-approved ones
1. Not having a budget at all
Problem:
If you don’t establish a plan for how to spend your money every month, you are likely living in between paychecks AND overspending in a way that could eventually put you in debt, or MORE debt. In addition, you probably aren’t saving for important financial goals, such as saving for a vacation or retirement.
Fix:
Implement a budget calendar into your life, showing which days you get paid, when your bills are due, as well as other events you have going on during the month to ensure you are able to tweak your budget accordingly.
2. Forgetting about taxes
Problem:
Pretend you have a salary of $50,000; that doesn’t mean you take home a twelfth of that each month. Income taxes take a cut before you ever touch that money. If you calculate your max spending using your salary then you are pretending you have several thousand dollars that you… well… don’t. In this instance, you would be over-estimating your take-home pay by around $12,000.
Fix:
If you’re self-employed, make sure you have a plan to save for taxes. I have a “taxes sinking fund” in which I allocate a percentage of my paycheck to every single time my income hits my bank account. That way, I don’t use that money and when taxes are due, I dip into that sinking fund instead of paying taxes from a credit card (sound familiar?)
3. Not having an Emergency fund
Problem:
If you don’t have this financial safety net to fall back on, you risk having to dip into your long-term savings to cover your expenses, or worse, you spend on credit and potentially go deeper into debt.
Fix:
Maintain an emergency fund, you can draw from the fund when the need arises and then replenish it so that it’s there when you need it next. But like any other financial goal, you have to budget for it. While you’re building an emergency fund, include the monthly amount you plan to contribute to the fund as a fixed expense in the saving category of your budget.
TIP: I teach you how to start savings for an emergency fund here. Emergencies WILL happen. Make sure you’re covered!
4. Not budgeting for FUN
Problem:
Think you can live without fun? A budget is about taking control of your finances so you can spend your hard-earned money on things that actually matter to you. It’s about living the life you want to live.
If you cut out fun, then what’s the point?
Fix:
A general rule of thumb is to budget between 5% and 10% of your paycheck for fun. This might change depending on emergencies or big saving goals, but the important lesson is to make sure that you factor in some sort of number here.
5. Set it and forget it
Problem:
A budget is not a “set it and forget it” type of tool. Your life is changing all of the time, and because of that, your budget needs to reflect those changes. When you do this, you’re not able to identify problem spending areas in your budget and determine if you need to increase or decrease your budget limits in the future.
The truth is, there is NO perfect budget. Your budget continually needs to be tweaked and perfected as you go along. That’s what makes it successful and realistic.
Fix:
Did you spend a lot of money on gifts? Change the budget. Do that with every single category where you see that you’re spending too much.
How often should you revisit your budget? Every month?
When doing so, ask yourself the following questions:
- Are all my expenses accounted for?
- Am I overspending on anything I don’t care about or don’t need?
- Am I tracking my saving goals?
- What about paying down debt?**
Click here for a post all about how to take the headache out of debt! FREEBIE included!
6. Forgetting about yearly expenses
Problem:
When constructing your budget it is easy to remember all of the services you are billed for on a monthly basis, but it’s much harder to recall those less frequent charges- like the yearly or quarterly ones.
Fix:
Some services to consider when budgeting are:
- Membership fees
- Credit card annual payments
- Streaming services
- Insurance payments
- Licensing fees
- Charitable giving
- Quarterly taxes
- Union dues or organization membership fees
- Holidays and gifts
Take those bills and divide them by 12, then commit to saving a portion of that expense every month.
For example, I have $150 subscription billed yearly for TV streaming, so I put away $12.50 every month in preparation for that larger bill.
7. Not tracking spending
Problem:
If you don’t know what you have spent, you won’t know when you have reached your budgeting limit. You risk overspending and prematurely blowing your budget or spending too little and failing to meet financial goals like debt repayment.
Fix:
If you can’t manage your cash throughout the month, consider using the envelope system of budgeting where you’ll divide cash for spending into multiple envelopes that are each intended for use on a specific spending category.
Print out this FREE budget category key, put in into your budget binder and let’s get started categorizing your expenses.