It’s wrong to think that you need to be rich in order to create a budget. Making budgets work can be difficult but you still can if you avoid these blunders.
For most of us working professionals, paydays assume more significance than public holidays and extended weekends. We do a little happy dance inside when our phones light up with the incoming message of our salary being credited. But as we approach the end of the month, we sometimes find ourselves barely managing to keep our finances together. This is why making a budget is so crucial. You don’t have to be rich to have a budget.
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In fact, building a budget is only half the problem solved. The crucial and perhaps more trying part of the battle remains-sticking to the budget. But even when most individuals account for these two things while making a budget, they often make blunders that can be easily avoided. Let’s take a look at them here:
Making a budget with no goal:
You know that time in school, when everyone asked you, “What do you want to be when you grow up?” We may have detested answering those questions at the time, but it was not without reason. Having a goal helps plan your actions and life decisions. The same logic holds true for budgets. A budget with no purpose or end goal in sight is pointless and impractical. If you create a budget where you want to save 20% of your monthly income, you will need to decide why you want to save that amount. Only when you know why you’re saving it will you be proactive about saving that amount every month. Ask yourself if you want to save up that money for a vacation abroad, higher education or buying a house. This will give direction to your actions and help you reach your financial goal easily.
Additional reading: Budgeting Lessons For The Spendthrift Drama Lama
Leaving out irregular expenses:
Aside from monthly expenses, there are a whole bunch of expenses that will keep popping up every now and then and put a strain on your finances. These include yearly insurance premiums, holiday spends, higher utility bills in winter and summer, quarterly taxes and home-repair costs. Not accounting for these expenses in your budget will eat into the corpus you intend on building with your savings. In fact, there will also be unanticipated expenses that you don’t see coming – a relative’s wedding or the oil change in your car. You can even earmark a small amount for expenses like these every year and include them in your budget.
Not having an emergency fund:
Curveballs like medical emergencies often coming knocking on the door when you least expect them to. Setting aside considerable money for this purpose will help you deal with financially-stressful situations. (You could also consider getting a Health Insurance cover.) With a separate fund earmarked for emergencies, unanticipated expenses will not eat into your savings.
Additional reading: 5 Simple Yet Effective Investment Options For Your Emergency Fund
Making a budget that’s unrealistic:
So, now you’ve done the unthinkable – finally got yourself to make a budget. You’ve resolved to create a budget that will throw unnecessary expenses out the window and leave you with plenty to reach your financial goals faster. But, wait. Here’s where you’re going wrong -you’re not taking into account the “fun” expenses. When you create an overly-strict budget that has zero room for fun, indulgences, or discretionary spending, you’re opening the door to failure. You actually end up spending more than you would have if you had just given yourself some “fun” money to spend. Another pitfall of an overly-strict budget is that eventually, you will get tired of restricting yourself so you will go on a spending spree. Even a tiny amount of discretionary spending will throw your budget out of gear.
Not tracking your spending:
This might seem like a no-brainer but one of the most common financial missteps that people end up taking is not to not tracking their spends. If you can’t keep a track of where your money is going every month, you will end up in the same predicament that we mentioned earlier at the end of the month. You will not realise when you’ve overshot your budget or have just reached the mark.
Trying to match others:
You might have a bordering-on-dangerous habit of emulating your friend’s life – putting your children in the same school or buying the same car model. If it’s been working out for you so far, then great, but please leave your finances out of it. Comparing your finances can cause more damage than you think. Either of you might be in different positions in life – you might have debts to get rid of or she may have a higher income. Create a budget that takes your family’s needs and priorities into account and don’t try to keep up with anyone else.
Budgeting may seem like a long-winded affair but you can start with taking small actions every day – track your everyday expenses, however small they might be. These expenses all add up and give you a true idea of your total expenses. With these common blunders at bay, budgeting can give your finances a much-needed reboot.
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