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One of the responsibilities of being an adult is to properly manage your finances. Your money controls so many aspects of your life. It determines how you eat, how your children will be educated, what kind of car you drive, and how often you vacation. Face it, budgeting is important and if you do not track it properly, you could literally be throwing money out the window.
Below are my collective biggest budget mistakes that I see clients make on a regular basis. I am sharing these so that you can sit down with your spouse and discuss.
Also, it is a great mentoring opportunity to teach your children so they grow up with the right financial mindset.
Let’s get started.
Your money controls so many aspects of your life.
#1 NOT KNOWING YOUR EXPENSES
There are usually tell-tale signs that someone doesn’t know their expenses. One of these signs might be overdraft charges. These can occur if one overspends (expenses exceeds income) and fails to account for the monthly debt items.
When it comes to budgeting, you can not guess or assume your monthly bills are the same month-to-month.
There are a variety of reasons why your bills fluctuate. For instance, your utility bills such as water and electricity will vary based upon on that month’s usage amount. However, other bills such as internet, phone, insurance, etc may have an increase in fees or taxes and if every dollar must be accounted for then the difference must come from somewhere.
A tip that I have learned and used when I sit down to go over my budget is to look at my bank account and see how the bill has changed over the past two to three months. I like to round up which acts as a cushion. For instance, when budgeting, if I am anticipating my oil change to be $47.95/month, I will usually round up $50.
One financial resource that I love using is QAPITAL (using this link will get you $5 added from QAPITAL when you set up a FREE account with them) because it is a very effective way to saving money. Let’s use our example above.
Should the oil change be $48.50, I can set a rule within QAPITAL that every time the oil change company charges my debit card, the difference of $50 from the actual cost (in this case $1.50) be deposited into an escrow account.
Each month, I will have approximately $200 in my account for discretionary or any unanticipated bills that may arrive. It is highly effective and one that I recommend. I shared a screenshot of my account from QAPITAL just as an example of how simple it is to use.
#2 FAILING TO TRACK YOUR SPENDING
Some may confuse tracking expenses with tracking spending but these are two very different items. Knowing how much you owe is only part of the solution. The other part is knowing your spending habits.
Each month, you can review your spending via checking account. Take a look at your bank account and with a highlighter, highlight every line that is not reflected on your budget.
Next, add up the amounts you have highlighted and comment in the box below to share. Share only the amount. I am guessing it is significantly more than you expected.
I reviewed mine last week and discovered I spent $20 more than budgeted for a local coffee house. (Yes, I make budget mistakes too!) This is important because when you recognize the faults and weaknesses, we can learn from these moments to fix it next month.
When it comes to tracking your spending, each person will have his or her preference. My favorite budget tracker is to put an ink pen to paper. Unfortunately, these papers piled up as I never filed them away. Also, since I travel quite frequently, I needed a better approach to adjust while on the road. This is where Google Spreadsheets or Google Drive comes in handy. I can modify my budget on the road when and where I want.
While you don’t have to spend money on excessive software, one resource that I use to track my monthly spending is Personal Capital.
If you are not monitoring your budget, then it is like taking a road trip in your car and ignoring the fuel gauge. Eventually, you will run out of gas.
Another huge issue with tracking what you may spend is you are neglecting some items. You leave off items from your budget such as frivolous items such as last minute gifts, hair cuts, or bills that come around once a year. This happened to me last year when it came time to renew my Amazon Prime membership.
#3 MISLABELING WANTS AS "NEEDS"
Take a hard look at your budget. Determine if you can do without some items reflected on the budget. You might be surprised to find out that several expenses can be reduced or cut out entirely.
Typically, people include food expenses in their budget. One example is dining out. Perhaps adjusting what you eat or how much you are eating out can be cut back to help better budget.
When I dine, I usually order water because it is healthy, but it also saves me $2-$4 roughly. Perhaps double check before you order that appetizer.
This isn’t to say to not order appetizers but rather to present options if your budget is tight.
One bill that I cut 18 months ago was my cable bill. I would have bet $500 that I would never have allowed it. But with the rapid change in technology, I upgraded with a Roku and Amazon Fire Stick which affords me the opportunities to watch my regular TV shows while saving $100 a month.
Budgeting is critical to your financial health. Remember that we all make mistakes. It isn’t the mistakes that defines us but what we learn from our mistakes and how we avoid it in the future. With planning and careful attention to detail, you can sit down once to twice a month and create a solid budget that will secure your financial future.