Having a budget is essential because it allows you to have a clear idea of your finances and thus know how much you can spend and when it is better to avoid having expenses. But it’s easy to make mistakes when you budget. We leave you a list of common mistakes people make when making a budget to avoid them.
1. Estimate how much you spend
Before you can have a budget, it is important to have a clear idea of both your earnings and your expenses. You need to know what expenses are essential and which ones can be avoided. You also need to have an idea of how much money you spend on whims. Guessing these expenses will not do you any good since the budget has to be as accurate as possible.
If you do not have a clear idea of how much you spend and how much you save, you can start with a trial month in which you write down all your expenses, even small ones that may seem insignificant – in the long run, everything adds up!
The first budget you make may not be perfect, so give yourself a month of time to test your budget and then see if you need changes and more flexibility.
2. Forget to save for the unexpected
As much as you have some fixed expenses and other variables that you have anticipated, it is quite certain that you will have some unexpected expenses. It is important to include a realistic amount in your budget to be able to crumple these expenses and not be unprepared if something happens. It can be an emergency fund or a sum that you have fixed in the budget. If you do not need it, you can put it aside as savings for that month, but do not reduce the budget for emergencies in the following month, you never know.
3. Have unrealistic expectations
One of the fundamental points is that the budget has to be realistic. It is a futile exercise to make a strategy unattainable as it will last a month or two and you probably end up not following it.
It is clear that you will not stop eating or buy things to spend less. You need to be clear about the expenses that are fundamental and that, however, much you want, you cannot stop having.
4. Make a budget based on your gross income
Obviously, there are several people who make this mistake. Whatever you win, you can not make a budget on profits that are not real. You need to make a budget about the money you receive on hand after tax deductions and various insurance among other things.
5. Not taking into account cheaper alternatives
It may be that to spend less you have decided to reduce your expenses. This is not a bad idea, but you may not have considered changing service and looking for a cheaper one to be able to have a lifestyle similar to the one you are carrying now but save some more money in the meantime.
The first thing you need to do is look at your bills and see if anyone seems higher than it should be – sometimes it happens, it’s winter and there comes a bill for the very high heating that we did not expect. It is true that you can lower consumption to avoid paying back an awful lot, but you can also change providers to have a more affordable rate.
6. Too many accounts
By having multiple credit cards and bank accounts, it is easier to lose track of what you are spending, especially in cash. Simplifying is always better so you can keep track of all your expenses.
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7. Do not adjust the budget
The budget should not be something fixed since to improve the financial situation, it is necessary to make adjustments from time to time according to expenditure. If you see that the previous month you spent too much on shopping or other forms of entertainment, it is important that you adjust your budget to avoid spending more every month. Giving a taste every so often is okay, the problem arises when this becomes a routine.
In addition, revenues change from year to year, so it is essential to adjust the budget to remain relevant.
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8. Use money dedicated to other categories
If you have made a budget and have used all the money you have set aside for gifts for example at Christmas time, you should try not to take money from other categories. If you have made the budget this way, it is because you have tried not to spend too much in a certain category. Eating less to save on food and spending more on shopping will not do well in your pocket in the long run.
9. Have no entertainment
Trying to save money does not necessarily mean stop doing fun things. The important thing is to do everything in the right measure and without exaggerating. In addition, if you do not leave any money to do fun things, in the end, you will end up getting money from other categories to go out with your friends, and end up spending more than you would have to spend.
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10. Thinking you do not need to have a budget
As boring as it may be and for as long as it takes, having a budget is a must if you want to save money. Effortlessly you will not achieve the financial goals you set yourself.