A budget is nothing more, at first, than a list of what you need to spend money on. At first, I made one, and then ignored it, spending money where the desire was, not where it was needed. Looking back, I see many budgeting mistakes, and how they could have been avoided.
Why do I need a budget?
You have a budget right now, even if it isn’t written down. You spend money on things, and people, and pay bills. This is where you can start. A budget simply makes sure that you have money for all of the needs (rent, payments, and groceries), plus a portion of the desires and wants (eating out, new clothes, and that new game)! Without a budget, bad habits can develop, and if the worst happens, may leave you without the ability to pay for anything while you get back on your feet.
An honest look at where money is going surprises many people. They simply did not realize how much they spend, and where. This is something that can be brought under control, without sacrificing too much of what you do now. So we start with where we are, and see if there are any budgeting mistakes we can correct!
Setting up a workable budget
The first stage is getting records of what you have spent money on the last three months, plus any annual or every 6 months bills. I mean:
- Food. Yes, fast foods count, as does the dinner that you splurged on to impress someone.
- Bills: any place you spend money to keep going. Gas, insurance, and a small loan of $10 from your best friend goes into the budget.
- Other items: This is where budgeting mistakes can happen easily. People forget things like haircuts, garbage bags, and the weekly share of lunch in the office. These all have to be accounted for.
- Annual/bi-annual bills. Yearly car insurance, plates, roadside assistance, gifts, and inspections and taxes all need to be counted, as well. Game memberships, too!
Now, look over your bills. Make sure that you have exactly as much as you have made in those three months. If you have a savings account with fees, or returned check fees, these need to be figured in. You can now average what you spend each month. Write this down (spreadsheets can bereally useful for this!), and see where you are at.
If you have everything under control: a slowly-building savings account, no returned checks, and all the bills paid, plus money for fun, congratulations! You are a budgeting master. However, I suspect most will not be that lucky. This can be where even more budgeting mistakes creep in.
A common reaction to making the first budget is to start slashing expenses. This isn’t bad, and one of the reasons a spreadsheet helps. Lock what is being currently spent, and make all the cuts on a second column. A cup of tea, a walk, or a hug from a friend helps you be able to look at what might be too excessive.
Things may be bad, yes. You may have to cut spending money, for now, on less-vital items. Looking at the cuts, you may see another common budgeting mistake; cutting expenses too far, too fast. A slow change – so you don’t feel like you are giving everything up – works best.
Methods for budgeting
There are many methods of budgeting; locating the best one to avoid your personal budgeting mistakes may require a few tries. Moneycrashers as well as others to be great places to find effective ideas. They show you how each budget method works, and you can choose the best system for your own style.
If you are in a relationship, or have a roommate, you need to work as a team to get a budget and still enjoy what you deserve. A huge budgeting mistake (almost as common as not having a budget at all) is not communicating and working as a team to get a budget that is good for everyone. A switch of gym memberships or internet providers can improve your budget without giving up something that you need, but everyone has to agree to it.
Planning ahead is a needed skills for a successful budget. If you are paid twice a month, or weekly, I personally find these the hardest schedules to budget. “Oh, I’ll have money next week” is a statement that can bring ruin to your hard work and planning. You can divide the bills, so you don’t feel broke when all of them are due, and still have some fun money, which is needed.
The comfort you will have in a few months time of knowing that money is there, waiting, is really worth it.