9 Common Budgeting Blunders

The writer is a Delhi, India based Certified Financial Planner CFPCM, conferred upon by the
Financial Planning Standards Board. If you are an Indian resident looking for a financial plan prepared according to your needs & goals, write to her at shruti(AT)richesawait.com

Having a proper budget in place and sticking to it is one of the initial and critical steps of your journey to achieving financial well being. Yet, people end up wrecking their well-planned budget regularly and as a result, end up thinking that budgeting is not their cup of tea.

Well, making a budget work is not all that hard. Chances are, you are falling prey to a few common budgeting mistakes. But don’t worry, I have highlighted all such common blunders and provided solutions for avoiding them:

  1. Incorrectly Estimating Monthly Expenses
    While creating the budget for the first time, many people make an elementary mistake of guessing or assuming particular amounts for various categories, and when the actual monthly expenditure turns out to be greater than the assumed expenses one ends up derailing from their budget. It will help if instead of guessing, you find out the average of the past 3-4 months of spending for each category and allocate that averaged amount in your budget.
  2. Keeping The Same Budget Every Month  
    Not taking into consideration how your spending changes each month, and following a static budget month after month, is a recipe for disaster. A few examples of different expenses during different months are vacations, birthdays, festivals, etc. Even your utility bills (electric, water) fluctuate depending on whether it’s summer or winter. Keep in mind the expected extra expenditure for months when you have to spend on things like birthdays or holiday gifts in your budget.
  3. Budgeting Without a Purpose 
    One needs to be highly motivated to stick to a budget. But it becomes very hard to follow through when one doesn’t have an end goal in the picture. Your budget becomes an afterthought instead of a spending plan when there is no greater purpose or financial goal set by you to achieve. Saving for saving’s sake will never work. Have clear and well defined financial goals in place to stay motivated.
  4. Making Too Stringent Budgets 
    Another major rookie mistake is making a very strict budget. In the enthusiasm of having that perfect budget and saving as much money as possible, the majority of people end up setting an idealistic instead of a realistic budget. They do this by cutting down on spendings drastically. Always keep in mind that a budget is a work in progress with the aim of boosting your savings gradually. If you plan to undergo a major shift in your spending patterns during the first month itself, you will end up ruining your budget. It’s better to set a practical amount in each category instead of aiming for the sky.
  5. Leaving Out Irregular Expenses 
    Forgetting infrequent expenses can play havoc with your budget when they suddenly pop up because you have not accommodated for them in your budget. Expenses like haircuts, pet care, gifts, back to school shopping, income tax, etc are just a few examples of such irregular expenses. Make sure to have provision for such expenses in the budget so that you can stay on track.
  6. Not Tracking Your Spendings 
    Until and unless you keep track of your spending in each category, your budget will not work for you. It is important to understand how much you have already spent under what category to know when you have reached the predefined limit of said category. If you don’t keep track of the same you will end up going over your budget frequently. The solution is to find a way of tracking the expenditures that work best for you so you can stick to your budget.
  7. No Fun Money 
    A budget is not a punishment and it will never work if you treat it like one. By not allowing any fun or entertainment spending in your budget you are setting a path for failure. You will end up resenting such a lifestyle and finally give up on your budget. Fix a certain amount in your budget every month under the category of fun money, but make sure that you stick to the amount and don’t go overboard. This way you can follow your budget and also let your creative juices flowing for how to spend monthly entertainment money.
  8. Forgetting About Automatic Expenses 
    If you have enabled some automatic expenses, you need to account for those in your budget. It is all too common to forget about the auto-debit bills, subscriptions or other such expenses while drafting a budget. As a result, you end up having less than you thought you had. To avoid such scenarios, log into your online banking to make sure all your payments are accounted for before setting up the budget.
  9. Borrowing From One Category To Fund Another 
    You will never be able to stick to your budget if you keep borrowing from one category for another. If you end up spending all the designated money in your “utilities” category on “groceries” you are doubly jeopardizing your budget. Instead, be more disciplined to spend on stuff that you really need.

If you avoid the above-mentioned pitfalls you will be able to follow your budget properly and achieve financial freedom. But just make sure that you don’t give up too soon. Remember that all good things take time and the same is true for budgeting as well –  it is a work in progress. No one expects you to make that perfect budget from the get-go, it takes time and some tweaking to achieve desired results. You are in this for the long haul, treat it as a commitment for your better financial future.

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