Let’s face it: Most of us don’t like the idea of budgeting, or as I sometimes call it, “the B word.” The B word scares people because it often feels like a restrictive covenant on your checking and savings accounts. But that is not an optimum way to look at either the B word or the deed itself.
Maybe some re-framing is in order?
I practiced bankruptcy law for many years, and I often had to suggest to clients that they needed to be on a budget (they didn’t like that, even though 74% of Americans have a monthly budget.)
But what I told them, and what I am telling you, is that a better way to think of the B word, is not as a noose, but rather as simply a tool, one that you make for your benefit, designed to assist you in prioritizing what is financially more and less important to you. That’s it.
A budget is not about saying no to the things you enjoy, it is about saying yes to the things that are most important to you. After all, it is your budget, so why not make it work for you?
Let’s look at three common budgeting mistakes and how to avoid them.
1. Not being realistic
One of the biggest budgeting mistakes people make is creating a plan that is either too strict or too unrealistic. Both are fails.
Many people approach budgeting as if they are setting up rules that cannot be broken. They thereafter expect themselves to cut out every indulgence or unnecessary expense. This is a prescription for failure; it’s a budget that can only lead to frustration and, ultimately, the abandoning of the budget altogether.
Instead, build flexibility into your budget. Yes, you can — it is your budget after all. As such, make sure it reflects your true spending habits. If you love getting your daily coffee, that is just fine. Build that in. Make it a priority.
But in exchange, something else will need to go. That is OK, too. An honest budget is a tool that helps you prioritize. By being realistic, you are more likely to stick with it and stay on track.
2. Not accounting for irregular expenses
Another common mistake is not planning for irregular or one-time expenses, such as home repairs, annual auto insurance premiums, or holiday spending. When these costs arise, they can blow your budget out of the water if you have not prepared for them.
The solution? Set aside a small amount each month to cover these sorts of irregular expenses. By putting aside a little bit of money regularly, you will have a cushion when those larger expenses pop up, making them less of a burden on your monthly budget.
3. Failing to track your spending
While creating a budget is a fine first step, that is all it is. The real challenge is sticking to it, and the only way to do that is by consistently tracking your spending once the budget is in place. So the mistake here is that, after setting up a budget, you fail to track your spending. You won’t know if you are staying within the budget, and you won’t be adjusting as necessary.
See the problem? Without monitoring where your money is going, it is very easy to overspend in certain categories.
The good news is that tracking your spending does not have to be time-consuming or tedious. Simply deploy one of the many available budgeting apps to log your expenses. In fact, if you make it a habit to check in regularly in order to ensure you are staying within your limits, you can almost make a game of it. Knowing where your money goes will help you stay in control and make adjustments as needed.
Making your budget work for you
Ideally, you now see that your budget can and should reflect your financial priorities, not your money fears. Think of it as a tool to help you focus your money on what is most important to you.
If you do that, and learn to view budgeting in a new way, then what you should also discover is that the B word just might become the W word (Win).