6 Common Budgeting Mistakes that Might Cost You More

We start budgeting to ensure that we always have enough money in advance for the things we need or would like to do. However, once in a while, have you ever find yourself running out of money even though you’ve created a budget plan? Many people do not realise that they’re making crucial mistakes in their spending plan which eventually ended up costing them more. These mistakes often seem small and perhaps not even seem like one which leads you to overlook. Are you on a budget? Let’s identify if you possess any one of these common budgeting mistakes.

Being unrealistic

People tend to underestimate their spending especially when they first start a budget. You probably think that you’ll be able to spend a little when you actually shouldn’t. Slashing a huge amount from your first budget is equal to setting up yourself for failure. You can’t set a budget of RM100 a month for transportation when you’re spending more than that. You could go over budget and eventually get discouraged with budgeting when it doesn’t go as planned. 

Tips: Always track your spending and make some adjustments where necessary. Scale down your expenses on something that could realistically fit into your lifestyle. Never compare your budget with others as each of us is living a different life.

Not having financial goals

Being money savvy requires a huge amount of discipline. If you start budgeting without a goal in mind, you will tend to get demotivated and easily give up. Why? Because you don’t see the exact purpose of creating a budget. You could aim to own a house in your 30s or pursue a master’s degree abroad. These goals will help you to stay financially disciplined. Perhaps you’re getting a raise or bonus this month. Most people will tend to spend the extra money on a better lifestyle which does not improve their financial health over the long term. But with a goal in mind, you’ll be able to stay on budget and create a timeline to achieve it.

Tips: Write down your financial goals. Keep them somewhere you will see often. You can try placing them in your wallet and look at them every time you make a purchase.

Guessing your budget

We often tend to let rough guesses slide especially when we’ve just started budgeting. Guessing your budget will allow too much wiggle room and chances for compromising. Some people assume that their monthly bills are set thus they just put aside an amount of money according to their assumption. But once they’ve received the bills, they realise that they’re not the same amount. This eventually causes them to go over budget and end up with less money to allocate towards other needs.

Tips: Go through your past expenses first and then create a money plan for the following month. You can try using a budgeting and spending app to facilitate the process.

Same budget for each month

Our spending changes every month – to a certain extent. It’s infeasible to stick to the same budget each month without considering that our spending habits change according to our life circumstances. You could be spending more in December for a back-to-school shopping but not so much in February. Perhaps you’ll be throwing a birthday party in the upcoming month. Or now that you’re stuck at home due to Covid-19, your budget this month changes again. Thus, you can’t rely on last month’s budget when your circumstances are different today.

Tips: Visit your budget regularly. Plan your budget at the start of the month. Make sure to always revise and adjust your spending plan accordingly. Take into account every future event that you might encounter and never leave out even the smallest items like a haircut in your expenses.

Too restrictive

Don’t be too hard on yourself. Budgeting doesn’t mean you need to forgo all the fun and entertainment in your life. We’re humans after all. How long do you think you can live without having fun? Splurges are okay if you have it planned and let it stay within your budget. Being extremely strict with your spending can be wearying and demotivating which may lead you to blow your budget.

Tips: Set aside 5% to 10% of your paycheck for fun and stick to the amount that you’re going to spend. Adjust accordingly by month and occasion. If you’re spending on a big-ticket item, allocate an amount for it each month leading up to the purchase. Do not splurge on something that might set you back financially without planning for it. 

No emergency funds

Why do emergency funds matter? Unforeseen circumstances which we can’t merely predict when creating a budget are bound to pop up. An emergency fund is there to protect your budget and helps you stay on track. Your electricity bills can be unexpectedly high at times or you might need to repair the car. Having an emergency fund will get rid of the need to swipe your credit card or fall into other debts just to cover these unforeseen circumstances. 

Tips: Allocate a percentage of your income into an emergency fund. To find out how to set up your emergency fund, read more about it here.

After all is said and done, not having one is the biggest mistake you can make. Having a budget is not just for you to merely follow. You need to make sure that the budget created is the right one for you too. Budgeting is important but you also need to look out for the mistakes. They may seem small and negligible at first but will impact your finances in the long run. Do you find yourself committing any of those mistakes? If you do, then it’s time for you to address them systematically and start adjusting them today. 

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