As I have written previously, I believe having a monthly working budget is the key to your financial success. If you can’t control your money via a budget, you can’t build savings, you can’t pay-off debt, and you can’t plan for the future.
However, it is quite possible that as you are getting started with the budgeting process, you are running into some issues. Here are 5 Common Budgeting Mistakes and how to solve them.
1. Failing to Track your Monthly Expenses
Remember that a budget is simply a plan for your money. And the only way a plan of any kind works is if you can measure the results against the intent of the plan. This works whether you are discussing a schedule for building a house or a weight reduction program. You need to face the reality of how you are spending your money.
I will admit that I am a bit obsessive with tracking spending but I have a system that works for me. Every expense is tracked in Quicken and I also keep tabs of the actuals in an Excel Spreadsheet. I can always tell where we are at any given point in the month. It gives me great peace of mind.
Whatever budgeting system you are using, do not neglect to track your actual expenses as it will give you a good view on how well you did in planning your budget.
2. Preparing a Budget but not using it
This is closely related to item #1 above. You may have done all the preparation work on Quicken, YNAB, or an Excel Spreadsheet. You even did it before the month began and you allocated every dollar to a spending category.
But now, the budget is filed away and the month goes by without you checking how you are doing against the budget. Remember, the budget gives you the boundaries for your spending (like the foul lines on a baseball field that enclose the fair area of play). You should keep an eye on how the actual spending matches against the planned spending.
So I don’t’ suggest you look at your budget every day but at least take snapshot once a week. Get the budget out and see how you are doing in staying on track with your money plan.
3. Failing to Adapt/Change When it is Needed
As you keep an eye on your expenses against your planned spending, you will be able to gain insight into any required adjustments. For example, you may have an unexpected drive out of town and you need to increase the allocation for gasoline. And perhaps your clothing needs are not as high this month as you thought. So you make the adjustment in those categories and balance your budget.
Remember that this is your money and your budget. It is not written in stone so if the conditions of the month change, hold a budget committee meeting and make adjustments as needed.
4. Forgetting to Prioritize the 4 Walls
Your budget is a great tool to help you prioritize your spending. First and foremost you need to take care of your family and yourself.
This means that the 4 walls need to be protected by allocating the spending first those categories. The 4 walls are: food, shelter/utilities, transportation, and clothing. If you take care of those items first, you will be in a better position to deal with the rest of your spending because you would have taken care of your family first.
5. Making it too complicated
The final mistake is making this process of budgeting too complex. The reality is that the concept of budgeting is very simple: lay out all your income side by side with your expected expenses. Then allocate each available dollar to a spending category. That’s it.
You could get bogged down with all the configurations of a tool like Quicken or build an Excel spreadsheet with 20 tabs. Don’t do this. Keep it simple and it will be easier for you to stay with the budgeting process.
Are you making any of these budgeting mistakes? What are some of the challenges you experience in using a monthly budget? Let me know what you think!