By Amy Fontinelle
Everyone makes financial mistakes from time to time - that's just part of life. However, knowing about common mistakes beforehand can reduce your odds of making them. Let's take a look at some of these common budgeting mistakes:
Mistake #1 - Forgetting to Write Down Expenses
It's impossible to stick to your budget if you don't know where your money is going. Ideally, you need to keep track of every single purchase, whether it's something small like a parking garage fee or something bigger like a new television. The best way to remember everything you buy is to update your budget each night before you go to bed while your purchases are still fresh in your head. You could also carry around a small notebook so you can jot down your purchases throughout the day as you make them, or make all your purchases with the same debit or credit card (effectively having someone else create the spending list for you).
The most simple budget-tracking tool is the cash envelope method. This involves taking several envelopes, writing the name of the budget category on the outside (like "groceries" or "fun money"), putting the amount of cash you are allowed to spend each month in them, and then making sure you don't run out of that cash before the month is over. This method will prevent you from overspending, but you won't reap the benefits of knowing exactly where your money goes unless you can remember to replace the money you take out with the receipts of each item you bought.
Mistake #2 - Intentionally Not Writing Down Purchases
One of the ugly truths about budgeting is that when you keep track of your expenses, it's painfully clear when you've gone off track. That's the whole point, though, and every day is a fresh chance to make better decisions. Go ahead and write it down when you've gone over your budget, because that negativity you feel will help prevent you from overspending more or doing it again. Just think of this step as damage control - don't skip writing down expenses just because they don't match up. Own up to your purchases and then move on.
Mistake #3 - Buying On Impulse
If you buy a pack of gum in the checkout lane every time you go to the grocery store and you go to the grocery store twice a week, that seemingly inconsequential purchase is costing you $8 a month, or almost $100 a year. Add a few impulse buys at a few other stores over the course of a month and no matter how inexpensive they are individually, they will add up. There's nothing wrong with buying gum, but if you notice by reviewing your budget that you're buying it at a rate of 52 packs a year, you can plan to buy your gum in bulk at a big box store for a third of the price and save money. Writing down even those minor $1 purchases every time can help you spend more wisely in the long run.
Mistake #4 - Becoming the Victim of Budget Busters
Sometimes you go out to do something or buy something expecting it to cost a certain amount of money - an amount you've budgeted for - but when you get home you've spent much more. How does this happen?
Perhaps you decide to go out with some friends on a Saturday night and you think you're just going to a bar, but once you get there the group decides to go out to eat. You're already along for the ride, so it's easier to give in to the pressure to join in on the food rather than be the odd one out. In that same scenario, after you've had a couple drinks, money may not seem like such a big deal and you may buy everyone a round against your normally better judgment. (Learn more by reading Budget Without Ditching Your Friends.)
These things happen, and you won't always be emotionally strong enough to prevent them. However, if you know that you have a tendency to buy more than just one thing when you go to the store, or if you know that your friends have a tendency to change their plans at the last minute, either avoid these activities or create a bigger budget for them ahead of time.
Mistake #5 - Being so Frugal it Makes You Miserable
Budgeting is like dieting: If you try to deprive yourself too much, you'll just binge later and throw all your hard work out the window. A spending binge can set you back far more than treating yourself occasionally, so go for the occasional minor splurge. Buy that bottle of wine or those new flowers for your yard. Let yourself take a vacation. Just keep your treats within your spending limits and you'll be fine. This may mean you're saving $200 a month instead of $300, but it's better than saving $300 a month for six months, making yourself miserable in the process, then going out and blowing $2,500 in the seventh month.
Mistake #6 - Ignoring the Time Value of Money
Sometimes the cheapest way isn't the best way. If milk, bread and eggs are cheaper at one grocery store and chicken, butter and cereal are cheaper at another, you shouldn't go to both stores every week to get the best possible deal on each and every item. Besides, unless you have incredible self control, you'll probably be tempted to buy something at the second store that wasn't on your list, thus defeating your whole purpose.
Correcting Your Mistakes
Correcting your budget mess-ups isn't hard, it just takes a few moments to realign your thinking patterns:
- Think about your spending not only in terms of money but also in terms of time, aggravation and sanity. When you have limited time, determine where your money-saving efforts are best spent. For example, should you focus on cutting out coupons to save 30 cents at the grocery store, or would you come out further ahead by using that time to switch over to a checking account that doesn't charge a monthly maintenance fee and a low balance fee? (For more, read Understanding The Time Value Of Money.)
- Everyone will go off his or her budget occasionally no matter how much money is available. It's human nature to be imperfect. Accept it as a certainty that will happen. While it shouldn't be an excuse for poor choices, the best way to correct your mistakes is not to beat yourself up for them. Take what actions you can to correct the mistake - maybe you can return something you purchased, or make up for the extra spending by selling something you own on eBay. Maybe there's nothing you can do except vow to do better next time. Then, forgive yourself and start fresh.
- If you need help staying on track, ask someone to hold you accountable. This could be a friend, relative, significant other, spouse or even a financial advisor. Pick someone with whom you feel comfortable discussing money. This doesn't mean you have to share with them the details of how much you spend and make, but you should at least be willing to speak honestly with this person about what your goals are, what steps you are taking to achieve them and whether you are staying on track. It's important to pick someone who won't be judgmental if you slip up or set a goal they don't necessarily agree with.
Staying On Track
For some people, an independent professional, such as a financial advisor may be the best bet for keeping you in line without picking a side. You may think you can't afford the hourly fee, but if you're routinely spending $300 a month on items you don't need, and being held accountable by a professional only costs you $100 a month, you'll still be coming out ahead. On the other hand, you don't want to go too far in the other direction and pick someone who will give you no flack whatsoever if you aren't achieving your goals. Pick someone who has been supportive in the past and wants to see you succeed.
If you can't afford a financial advisor but seek the neutrality and confidentiality of a third party, you may be able to find a local government agency or nonprofit organization that offers credit counseling, debt management or money management assistance. Though you may have to provide documentation proving that you qualify for their assistance, services designed to help the low-income or deeply indebted will most likely be free - beware of those wanting to charge you a fee. Budgeting Basics - Maintaining Your Budget
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