- Not having a budget at all.
There is no way around it… making a budget sucks. It’s scary. I mean,
what if you don’t like what you find? Besides, isn’t there a saying
“ignorance is bliss”?
You may want to avoid it but making a budget and some financial
adjustments is much less painful than being in crippling debt. It hurts,
but being broke hurts much more. Part of the problem is that
budgeting has traditionally meant sacrificing things you love and
embracing a pauper’s lifestyle. Keep reading and we’ll talk about
some alternatives. - Forgetting about income tax
Pretend you have a salary of $50,000; that doesn’t mean you take
home a twelfth of that each month. Income taxes take a cut before
you ever touch that money. If you calculate your max spending using
your salary then you are pretending you have several thousand
dollars that you… well… don’t. In this instance, you would be over-
estimating your take-home pay by around $12,000. - Not having a category for emergencies
Emergencies and the resulting surprise expenses are an unavoidable
part of life. The only way to prepare for the unknown is to
acknowledge that things happen and to build up of a financial
cushion. Consider the cost of the following emergencies:
Auto repairs. The most common auto repair is to replace the oxygen
sensor. This typically costs $250.00
Home repairs. The most common home repair is a clogged or leaky
sink and the average plumbing bill is between $160 and $430.
Health concerns. The typical cost for a medical visit for an illness
ranges between $130 and $180. - Thinking you can live without fun
You can’t.
Sure, you can save a ton of money if you only sit in a dark room and
drink water. But how long can you keep that up? This budget will
100% fail. Besides, a budget is about taking control of your finances
so you can spend your hard earned money on things that actually
matter to you. It’s about living the life you want to live. If you cut out
fun then what’s the point?
A general rule of thumb is to budget between 5% and 10% of your
paycheck for fun. This might change depending on emergencies or
big saving goals, but the important lesson is to make sure that you
factor in some number here. - Failing to revisit your budget
As your financial situation changes, so should your budget. Did you
get a raise? Change the budget. Did you spend a lot of money on
gifts? Change the budget. Sign up for a cool new service that delivers
a fancy cheese to your doorstep once a month? I mean, cool, but
change the budget.
How often should you revisit your budget? Every month. When doing
so, ask yourself the following questions:
Are all my expenses accounted for?
Are all my income streams reflected?
Am I overspending on anything I don’t care about or don’t
need?
Am I tracking well towards my saving goals?
Am I paying down the right debt? - Overcomplicating your budget process.
Don’t reinvent the wheel! There are a ton of cool tools out there to
make budgeting easier. If you’re looking for a free budget template,
check out these:
We are including our 12 month editable budgeting tool for everyone
in Buyers Boot Camp - Failing to negotiate.
- Before you cancel your cable service or skip out on a coffee, try
- negotiating down your bills or shopping around for better deal.
- Are there any loans you can refinance? Banks and credit unions are
- always competing on rates and if you made a big purchase (like a car
- or a home) when your credit wasn’t so good, then you should shop
- around for a new rate.
- Focusing too heavily on saving.
There are two sides to every budget; what you spend and what you
earn. Which is easier; cutting another $100 from an already thin
budget or figuring out how to earn an extra $100 a month?
More than a third of all Millennials have a side gig and entering into
the gig economy can be a great way to solidify your financial
standing without sacrificing your quality of life. - Making uninformed guesses.
Imagine if you went to check your bank balance and the receipt said:
“You have around $1,000.”
Around? Not cutting it. You want to know exactly how much money
you have. Heck, if banks allowed more than 2 decimal places, that’s
what I would want to see.
When it comes to making our budget sometimes we let the rough
guesses slide. “Electric bill is usually around this” or “I spend about
that on food.” These estimates can be wrong and the discrepancies
can add up into being hundreds of dollars off from your expected
expenses. The result: an avoidable budget crunch. - Forgetting about semi-regular expenses.
How many subscription services charge you just once a year?
(Hello, Amazon Prime)
When constructing your budget it is easy to remember all of the
services you are billed for on a monthly basis, but it’s much
harder to recall those less frequent charges. They add up. Some
services to consider when budgeting are:
Website hosting
Streaming services - Online classes or tuition
- Insurance payments
- Retirement contributions
- Charitable giving
- Quarterly taxes
- Union dues or organization membership fees
- Holidays, Birthdays, Graduations Etc…
- Take those bills and divide them by 12, then commit to saving
- a portion of that expense every month. For example, I have
- $100 subscription billed monthly, so I put away $8.33 every
- month in preparation for that larger bill.