Shockingly, one in three U.S. households do not prepare any monthly budget at all.
An equally concerning issue is that even those who do make a budget can end up making significant budgeting mistakes. Budgeting errors can lead to financial trouble down the road.
Let’s look at some of the common budgeting mistakes and how you can fix them.
Mistake No. 1: Your budget is unrealistic
If you have ever made a New Year’s resolution, you know how easy it is to abandon it within a few days.
Similarly, making an over-ambitious or excessively restrictive budget will set you up for failure from the start itself.
For example, in a rush of emotion you may decide to dramatically cut your spending. But it may be impractical to follow for any reasonable length of time.
How to fix it
Prepare a meticulous list of your monthly expenses and identify the non-essential items that you can realistically live without.
If saving 40% of your monthly income is unfeasible, then pick a target figure that you can reach more easily.
Select a budgeting method that is most appropriate for you. If you are tech-friendly, you can use an app to track your monthly spending in order to adhere to your budget.
Mistake No. 2: Your family is not involved in budgeting
If your spouse or other family members are not on board, you are most likely setting yourself up for a failed budget.
You alone may not be controlling all the expenses or income in your household. But if others are not even aware of your budgeting efforts, they might unknowingly derail your plans.
How to fix it
Instead of unilaterally imposing a budgeting plan or spending rules on your family members, enlist their cooperation and involve them in the budgeting and goal setting process. What are the priorities of each member? What are the common expenses that affect each the entire family? Once you have addressed these questions, it will get easier to meet the budgeting goals and give you more control over the household expenses.
Mistake No. 3: It’s too easy to spend
Subscription orders, excessive reliance on credit card extended payments, one-click ordering online with stored payment information, fancy shopping newsletters, and food delivery apps – all of these make it easy for you to spend more than you planned and exceed your budget.
How to fix it
Create artificial friction to reduce your spending. Start using cash more frequently in place of a credit card, cancel subscriptions, remove your saved bank details from an online shopping website, and avoid any spending triggers that send your budget haywire. At the other end of the spectrum, set up auto-pay for monthly bills and set aside a fixed monthly amount from your pay that goes directly into a savings account.
Mistake No. 4: You are not creating additional income streams
When you see that your monthly expenses cannot be trimmed any further, but your budget is still failing, the problem may not lie on the expenses side but on the income side of your budget.
Savings are important for survival but for growth you need additional income.
How to fix it
Consider working overtime in your existing job or explore the possibility of a promotion or a pay raise.
If this is not an option, use your existing skills to perform freelancing assignments or gigs to earn an additional income. If you have extra space in your home, you might rent it out to generate a passive income.
With a focused effort, you can balance your budget by adding more income to match with your monthly household expenses.
