Doing a monthly budget is the quickest way to get to your Preferred Financial Destination, however, it’s important to be aware of the most common budget blunders and how to avoid them.
The first Budget Blunder is being unaware of what you’re spending as you go through the month, which causes you to go over budget on entertainment, dining out, clothing, or another category.
Sometimes we have a vague feeling that we might be spending too much money in a certain area, but we’re just not sure. This can be especially true if you and your spouse are spending money in the same category and are unaware of what the other one is spending. The solution is using cash for the categories you have a tendency to overspend on.
Paying for things with cash hurts – literally. Scientists have discovered that when people use cash for purchases, it registers as pain in our brains. So why is this a good thing? Because it cause us to be mindful about our spending. People who use cash instead of credit cards spend 12 to 18 percent less at the store; what an easy way to cut your expenses.
Nervous about carrying around cash? Prepaid credit cards or a separate account with a debit card may be a better option for you. You can transfer a set amount every time you get paid for your entertainment, dining out, clothing, etc. This way you can’t spend more than your budget, because when it’s gone, it’s gone.
The second Budget Blunder is forgetting something that should be in the budget.
Expenses like graduation pictures, your parents’ anniversary or a cousin’s baby shower are things that tend to sneak up on us and throw our budgets out of whack. The fix for this blunder is tweaking your budget to see where you can pull those funds. Your budget is not chiseled into a stone tablet, never to be changed.
Be creative and think about what other categories you can decrease to cover the unexpected expense. When these unplanned expenditures come up, ask yourself these questions: Do I really need to spend money on this? What’s the least amount I can spend? Can I work some overtime to help pay for this?
Sometimes, we feel pressured by others to spend money in social or family situations. You must be determined to take ownership over your financial journey. That may mean saying no to a few things, so that you can say yes to the things that are important to you.
The third Budget Blunder is that you’ve budgeted for perfect conditions and not reality. The solution is to be realistic about your goals and lifestyle. If you allocate zero dollars for dining out, that’s probably not realistic.
Don’t cut out fun completely, just put some reasonable limits on it. If you set up your budget with nothing in the entertainment, dining out, or other ‘fun’ categories, you’re setting yourself up for burnout. If you go on a diet, and you can never have a piece of cake on that diet, how long will you last before you fall off the wagon? Maybe a few days, if you’ve got a lot of willpower.
It’s okay to have portion controlled ‘fun’ built into your budget in the same way that it’s okay to have a piece of cake every once in a while, just not every day, with every meal.
Understand that your budget will change from month to month. May is nothing like December when it comes to how you’re spending your money. You need to adjust your budget month to month to reflect that.
Christine Luken is the Financial Lifeguard and a veteran Meal Planner. She helps individuals, families, and entrepreneurs design a financial road map to help them arrive at their Preferred Financial Destination. You can find Christine’s blogs, podcasts, and videos on her Financial Lifeguard website and her Meal Planning Monday blog.