If you want to save money, there’s no better way to do it than to create and maintain a personal budget. Among its many benefits, budgeting can help you keep track of your spending, save money, and work toward higher financial goals. But those new to budgeting tend to make a few major mistakes that can threaten their long-term financial success. Luckily, with a little foreknowledge, you can avoid their perils and maintain sound financial health.
Mistake #1: Taking Your Bills at Face Value
Often, those who are new to budgeting will collect all of their bills and set their budgets based on the numbers that they see. What they don’t realize is that some bills can be negotiated or even permanently lowered. Aside from being a smart shopper and finding the best deals on items, you can also call cable and electricity companies to find better rates or new deals for your service, especially if your contracts are up for renewal. If you have regular expenses, like yard work, that need to be taken care of, you might consider using the old-fashioned method of bartering to save even more money. Finding the best deals on every product or service that you can will give you a larger overall budget with which to work.
Mistake #2: Pinching Too Many Pennies
Saving is an important part of budgeting, but trying to scrimp too much can actually blow your budget. If you set your budget too low and get into the habit of going over, you may slip into a pattern of over-spending and eventually decide that budgeting is impossible. To avoid setting yourself up for failure, be realistic when you initially set your personal budget: Understand how much money you need to spend and not just the amount of money you want to save. Catalog and analyze all of your expenses so that you know what you need to live comfortably. In addition, allowing yourself an occasional “splurge fund” and considering it as a reward for staying on-budget can keep you on track and help you resist the temptation to overspend on higher-ticket items.
Mistake #3: Neglecting to Monitor Your Spending
It can be easy to lose track of what you’re spending if you don’t document where every one of your hard-earned dollars goes. To remedy this, collect receipts and document every one of your purchases. Make a habit of tracking all of your purchases by category, no matter how big or small; even minor purchases can add up in the long run! Regularly review your bank transactions to see where every penny is spent. Consider using a budgeting app like Mint or Wally that will help you visualize your spending and better understand which categories get the most of your money.
Mistake #4: Not Setting Aside Money for Emergencies
Let’s face it: In today’s uncertain world, anything can happen, and it sometimes does. Living on a strict budget and exercising amazing self-control can mean nothing if you’re one of the 40% of Americans who can’t cover a $400 emergency expense. Consider setting up a special savings account for emergencies, maintaining a set amount in your checking account, or simply using an envelope to set aside money as it comes into your household. If you have a specific amount of money that you want to save for emergencies, consider adding it into your overall budget until you reach it, then keep adding to the envelope as you see fit. Maintaining an emergency fund can increase the chances that you’ll stay on budget when/if unforeseen circumstances arise.