12 Common Household Budget Mistakes

February 4, 2019

 

No one likes to be told what to do with their money; however, learning from the mistakes of others can be a great way to ensure you avoid such common errors.  Having worked as a part-time life insurance agent, clients would tell me that budgets are too strict and leave no room for flexibility.  I simply just reply, "Budgets are only as restrictive as you make it."

 

Having a household budget is vital to your family's well-being, as well as, it is the role of being a household leader.  It is essential to know where every single dollar is being spent because if you are like 80% of households with debt, odds are you don't even have a plan to pay off the debt other than when the debt tells you.  

 

In this article, you will learn to avoid 12 common household budget mistakes in which your family can avoid to manage a financially stronger and happier life:

1.  Failing to Save

2.  Having No Budget

3.  Estimating Expenses

4.  Forgetting (non-monthly) Recurring Bills

5.  Being Unrealistic

6.  Not Including Fun (Entertainment) Money

7.  Avoid Saving an Emergency Fund

8.  Miscategorizing

9.  Stealing from Other Categories

10.  Not Balancing to Zero

11.  Failure to Monitor Regularly

12.  Keeping a Spouse in the Dark

 

 

1. Failing to Save 


Each month, you diligently pay your bills promptly only to fall short realizing that you may already be broke.  With groceries, utilities, lunch money, you are unsure how you managed in the past.  

 

As consumers, we tend to increase our standard of living.  With that, you fail to pay yourself.  With every paycheck, start saving a small portion of your salary.  No matter how large or small, start with a simple amount and never touch it.  The following month, try increasing it slowly.  Paying yourself may need to take actions that are small in comparison but scale big in the long run.  

 

Ask yourself, "How much can I save this week?"

 

 

2. Having No Budget


It amazes me how many clients I met who never budget their expenses.  The most common answer heard is that budgets restrict one's flexibility.  This is humorous because it is your budget, and you can make it as flexible as you want. 


If you are currently not budgeting your money, then create one and start managing it properly.  It is challenging to make financial plans without a road map, and your budget is your map on your financial journey.

 

 

3. Estimating Expenses


Every month bills may be different, but you have a general idea on how much an expense will be.  When budgeting, look at your historical statements and make a smart decision on how much you think the upcoming bill may cost you.  By winging it or generalizing it, you are tying up funds that can be used for other expenses or savings.  This alone limits your flexibility. 

 

 

4. Forgetting Non-monthly Bills    


A typical budget mistake is not budgeting of one-off expenses or non-recurring bills.  These are usually holidays, birthdays, etc.  If you know a child or parent has a birthday coming up, determine how much you can comfortably spend on that person. 

 

Next, do not overstretch yourself financially.  The best gifts come from those that are carefully thought out, not the most expensive.  Think back to your favorite present or gift.  Why is it an ideal gift?

 

 

5. Being Unrealistic


When setting financial goals, households tend to set unrealistic goals.  For instance, they want to retire with over $1 million within five years; yet, they are taking no action to get there.  Setting goals are highly encouraged but set goals that you can reach.  This keeps you motivated and inspired because if you are setting goals that can not be obtained, then you will continue to feel defeated.  

 

When saving money or becoming debt-free, determine how much is achievable and then make a plan to how to accomplish critical milestones every month.  For example, in 2 months, you want to have reduced your debt by $1,500.  Check the progress of this goal once a week and reevaluate if it looks like you are not heading in that direction.

 

 

6. Not Including Fun (Entertainment) Money 


Budgets are not just for expenses.  You need to budget for fun events too.  What is the point of working hard all week long if you can never enjoy the fruits of your labor?  Plan an evening regularly with your spouse and another with your children.  

 

Determine how much you can afford and do it.  By making this a regular practice, you will create unique memories and share new things.  

 

Fun outings do not have to cost anything but still create a "Fun or Entertainment" category in your budget, so when you know precisely the ceiling limit is to your spending. 

 

 

7. Avoid Saving an Emergency Fund


A common mistake to budgets is setting or having a smart account designed to house money in case of emergencies.  When such events arise, it is usually the credit card or savings account that gets used to finance emergency bills. 


By saving slowly and incrementally, you can build an emergency fund, particularly for such events.

 

 

8. Miscategorizing

 
Take a look at your budget and see if you are categorizing bills by its type.  For instance, by having a "Utilities" category, you can include an electrical statement, natural gas, cable, internet, etc.  
When households are not lumping their bills into critical categories, they are missing out on a chance to see if certain expenses are increasing or decreasing.  


In the summer, we know households use more electricity for the air conditioning, and in the winter, depending on where you live, more natural gas is used for heating.  


These bills may offset each other, but if not, you can see if the utility companies are overcharging you--which sometimes happens.


Start by categorizing your bills together and then calculate what percentage of your monthly budget these expenses consumer.  Here are a few examples:
 

INSURANCE (5%):
 Life
 Auto
 Health

 

UTILITIES (15%):
 Electrical
 Natural Gas
 Water
 Sewer 
 Internet 

 

 

9. Stealing from Other Categories


When you aren't budgeting, you are practically taking money from other areas.  If you know you spend around $2,000 per month on mortgage, HOA, insurance, but you overspent cash with the grocery bill, you may be tempted to delay the HOA payment. 


It is essential to stick to your category ceiling limits and never go over.  If you do, look for funds in a category that doesn't impact having a roof over your head, food on the table, and impacts to your credit score. 

 

 

10. Not Balancing to Zero


The primary purpose of a budget is to reach $0 on paper.  Every dollar needs to be in a category.  Having assigned every dollar helps to discipline your spending and manage your money smartly.  It also keeps you focused on where your money is going and can be a great tool to save money.  

 

If you still find yourself having money left over, put that away into a savings category so you can reach $0 or use it to pay down debt.

 

 

11. Failure to Monitor Regularly


It is highly recommended to review your budget regularly.  Budgets will only work if you take the time to build one and most importantly, follow it.  If you tend to create a budget and then consider every other month, you are not following your financial plan and are failing your financial goals. 


Make a conscious effort to review at least once a week and perform a checkup analysis to determine if you are staying on track with your spending and saving or if you have slipped up.  If you have slipped up, can you get back on track and then determined why you slipped up.   

 

 

12. Keeping a Spouse in the Dark

 

Finally, usually, one member of the household handles the finances.  While this can be a good thing, it can create problems too.  Never keep your spouse in the dark about where the money is going.  Make a weekly appointment for 10-15 minutes to go over the budget and physically show him or her where every dollar is going.  


By performing this exercise, you are confirming trust with your partner while building a future together.  It can also help because if the budget slipped this month or fell short in saving money, the following month, you both can agree to cut a few expenses to make up for the shortfall.

 

Household budgeting is vital for any financial success in your home.  Review these twelve budget mistakes above to ensure you are managing a financially stable household. 

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