Most of us often make these resolutions to create a budget and stick to it but only to end up in more mess than before. What are the most common mistakes that we do in making budgets?
- Keeping the same budget every month.
Typically when we start making the budgets, one of the common mistakes is made to stick to a fixed budget every month. As we all know some months are expensive than the others may be due to anniversaries, birthdays, travel, weddings, etc.
Solution: Keep different budgets during festival months/birthday months/vacation months etc
- Not Tracking expenses.
The beginnings are always easy, but continuing gets tougher. Most of us end up tracking the expenses in between either because of sheer boredom or lack of time.
Solution: Use an expense tracking app / just an excel to record all the expenses. Include every penny in that tracker.
3.Leaving out a few non-recurrent expenses.
While creating a budget, ensure to revise it every month depending on the expenses that come either quarterly/half-yearly/ yearly, etc.
Solution: Revise budget every month to factor in non-recurrent expenses.
- Not working as a team.
Ensure to make a budget for the family and not just for you.
Solution: As a family, make a budget for the complete family including personal expenses.
- Not maintaining an emergency fund.
Some months the expenses are more than the monthly income, forcing us to use credit cards and then fall into the debt trap. With careful budgeting & planning, we can avoid these traps by creating an emergency fund.
Solution: Keep at least 12 months’ expenses as an emergency fund.
- Forgetting the difference between Need & want.
While creating a budget ensure to write against each expense whether it is a need or a want. This helps in re-thinking if the wants/desires can be postponed or satisfied immediately. This helps in keeping the expenses in control or plan the expenses.
Solution: Create Wishlist vs Necessities with timelines.
- Not accounting for the credit card expenses.
A lot of times in our expense tracking, small little credit card swipes are not accounted for resulting in huge credit card bill at the end of the month.
Solution: Keep track of what is being paid by credit card. Create a budget category wise/payment mode wise.
- Not including Investment / Saving as a part of the budget.
Warren Buffett said, “Don’t save what is left after spending; spend what is left after saving.” Treat Savings/Investing also as a mandatory expense in your budget. This helps in disciplined investing.
Solution: Treat your investments as your first expense, hence include it in your budget as a non-negotiable item.
- Not creating a budget for unexpected expenses.
Many of the times, we encounter sudden expenses that are so random yet unavoidable. Make sure you keep a small budget for such expenses.
Solution: You don’t want to miss the sudden get-together of friends, sudden invite to a party which you can’t miss, etc. Factor in some % of the money for these expenses.
- Not having a budget in the first place.
Last but not least, one of the biggest mistakes that we do is not having a budget at all, thinking that I know all my income sources & expense pattern.
Solution: Don’t think that budgeting is only for companies. It is for every individual and family. Make a structured approach to spending by creating a budget.