Making and keeping a budget doesn’t come naturally to everyone. Luckily, it’s a skill you can learn and refine until you’re budgeting like a pro. Keep scrolling to find out where you’re going wrong, and what you need to do to make it right.
1. Not Budgeting for Emergencies
In life, you can’t always avoid an emergency or the unexpected expense that follows. But you can be prepared for these surprise bills by using your budget to build out a cash cushion.
Experts suggest saving as much as six months of living expenses in an emergency fund so that you can be ready for anything.
That’s a lot of money all at once, so you’ll want to set up a monthly contribution to chip away at your goal slowly.
If an emergency happens before you reach this target, consider using an installment loan as a bridge between paychecks. An installment loan is a convenient, simple way to get the cash you need in an emergency, even if you have no time to visit a bank. You can save yourself the hassle of borrowing in person and apply for your installment loan online anywhere you get Internet.
2. Forgetting About Infrequent Bills
Rent, check. Utilities, check. Groceries, check. Once you build your budget around these monthly bills, you can use the rest of your cash on fun things like travel and makeup, right?
Sure, these living expenses are some of the most common bills that arrive like clockwork, and you should always make sure you cover these before any other spending. But this strategy leaves you unprepared for the essential yet sporadic bills like taxes, license renewals, and weddings.
Sit down and brainstorm all the irregular essentials you’ll encounter in the year. If you aren’t sure how to start, here’s a list that might help.
Depending on the expense’s size, you may want to set aside some money each month so that it doesn’t come as such a shock when you pay it.
3. Living without Anything Fun
One of the biggest budgeting mistakes is believing your spending plan is all about depriving yourself to save some money. While some sacrifice is necessary to balance the books, you shouldn’t write off all fun spending.
Living on a budget without fun might be possible for some time, but eventually, you’ll get bored. And when you do, you’ll wind up splurging on more than if you had just budgeted for fun in the first place.
A general financial rule is to allow up to 30% of your income to go toward fun things. This comes from the 50-30-20 Budgeting Method and can help you set appropriate boundaries.
4. Working with Estimates
How much does Internet cost you? If you say something like around $50 a month, you’re making another mistake. You can’t talk in rough estimates when it comes to your budget.
When you guess at your bills, you’re setting yourself up for failure. Your Internet might end up costing you $54.27 each month, which is $4.27 more than you thought. This might not sound like much, but it adds up, especially if you’re making the same mistake with every bill.
Everyone makes mistakes. What sets you apart is how you fix them. Remember these tips the next time you sit down with your finances.