Budgeting has been known to kill many dreams. Just to save money, people end up leading a life they don’t feel very satisfied with. Despite that, we often end up with less resources than we expected after making all those sacrifices. Is budgeting really leading you to live a life you don’t want to live?
Maintaining a budget does not necessarily mean that you give up on your dreams just for the sake of a few dollars. In more precise terms, a budget is an itemized estimate of expected income as well as expenses for a limited period of time in the future. This means, you just make a note of how much you earn for a certain period of time, including payments from an annuity if you have one (click here for more information) and manage your expenses accordingly. The main aim of maintaining a budget is to keep track of your expenses and that you don’t spend more than you earn. So, essentially, maintaining a budget actually keeps things real and you don’t face disappointment which you would when you find you want to make a purchase and just don’t have enough money left!
Budgeting is a money management tool which helps you decide where you should spend money and where you would be wasting it. Its main purpose is to help you make smart decisions about your money. So, what if you create a budgeting plan with the intentions of improving your lifestyle but it ends up messing everything up instead? You wouldn’t believe how common it is for people to come up with budgets that have major pitfalls. This post will discuss if you have made any of these major mistakes and in case you have, how you can fix them.
- There is a leak in your budget – It is possible that you might not be writing all your expenses and recording them in your budget. It is possible to forget some of the most regular expenses because of automatic bill pay. To fix this, you should take time every month and review all your credit card statements, bank statements, and other automatic payment statements. Just make sure you make note of the simplest of statements and you will make your budget so much more friendly.
- Your budget plan is unrealistic – Some people think they can survive on an extreme diet and save all their money by eating much less than they should. Many others will stop using or reduce their usage of basic utilities such as electricity to drop their expenses. This is not wise and very unrealistic. If you end up affecting your health negatively, you will only incur more expenses. The solution for this is to remain realistic and not think of enjoyment and little luxuries such as good food as waste of money. This way, you will be able to save money and also have a good time. You could start by allocating 60 per cent of your salary to basic needs such as food, clothing, taxes etc. and use the rest 40 per cent for your enjoyment, long term savings, and short term savings.
- You have not included required information – If your budget is an extremely simple one in which you just take out some money initially and save it for savings etc. and then use the rest of it without worrying, you might be wasting more than necessary. Record information about how you spend your money, where you spend it, and how much you should be spending, etc. to keep your savings up and expenses down..
- You have included more information than necessary – It is a good idea to know how you are spending your money but recording information about every single penny that you spend is silly and just useless (unless you are very poor). If you earn a decent amount of money, it is not necessary to note that you spent a few cents on a postage stamp. Also, keep a note of which category you are spending most of your money in instead of tracking every single transaction. For example, if you purchased a pair of jeans yesterday and bought a dress today, note it down under “clothes” category so you know where you spend most and which area you should have more control on.
- You have not included real time data – Real time data is very important as it lets you know exactly where you stand right now. Your current financial condition affects your present which is why it would be beneficial to make a note of your transaction as soon as you make it. To do so, you can use a software application to record your transaction as soon as you make it. This will keep you updated on your financial condition and how much you can be spending.
- You have not included some periodic expenses – it is common for people to forget some periodic experiences. Many end up making elaborate budgets and think they are doing great until they realize that they probably missed a very important expense. These expenses could be your house insurance bill, your car insurance bill, and such similar periodic expenses. To prevent this from happening, you should make note of all your periodic bills and then sum them up. After that, divide the total amount by 12 and start saving it in your periodic fund account. This way, you can save money for your periodic expenses and have a clear idea about the rest of your money.
A well formed budget can help you improve your lifestyle and save money in the long run. If you can fix these mistakes and make your budget realistic, helpful, and leaning towards savings, you will feel much more satisfied with your financial condition than you do now.