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Three Budgeting Mistakes People Commonly Make

It’s easy to get extra-excited about creating a budget. But will you stick with it six months from now? A year from now?

If you’ve made one of these 3 classic budgeting errors, there’s a good chance that you won’t stick to your budget. If, however, you’ve avoided these common mistakes, you have a higher probability of success.

So what are these errors? Let’s take a look.

#1: The Complicated Budget

Have you crafted the world’s most complicated budget? If you have excruciatingly detailed line-items for every bottle of shampoo or toothpaste, your budget might be too complex. It’s easy to fall into this habit when you’re excited about budgeting, but if your budget is too hard to follow — well, then you won’t follow it. And that can lead to bigger trouble down the road.

Simplify your budget by restricting the number of categories that you have. You might decide, for example, to lump together everything you buy at the supermarket into one category, even if you’re purchasing a combination of food, shampoo, drinks, bottled water, toothpaste, sunblock and more during that same trip to the store.

I have a line-item in my budget that simply says “Amazon.com” — even though this encompasses everything from kitchen sponges to cat flea medication to a stationary bicycle and treadmill. It’s easier to simply have a catch-all category, like “Amazon,” than to painstakingly divide that into “kitchen supplies,” “workout equipment” and so forth.

#2: The Strict Budget

It’s great to set limits on how much you can spend on pints of beer or shopping sprees at H&M every month. But if your budget is too strict, you might decide to ignore it completely.

Similarly, it’s nice to set a goal of reducing the amount of fuel that you buy for your vehicle — but there’s a limit to how much you can shave down this number. Sure, you can walk or ride a bicycle from time-to-time, but if your grandmother lives two hours away, you’re going to need to visit her, regardless of the price at the pump.

Set a budget that’s realistic. Give yourself some wiggle room to hang out with your friends, buy clothes, and have some breathing room. Use numbers that reflect a 5% decrease from the amount you spent last month, or last year, on items like food, fuel and heating. Achieving a 5% decrease is realistic; a 50% decrease is not.

#3: The Incomplete Budget

You’ve remembered to budget for your normal monthly expenses, like your house payment, food, fuel, mobile phone, “fun” money, and so forth. But you’ve completely forgotten about those semi-annual, annual or irregular bills, such as vaccinating your dog, buying your niece a birthday gift, or paying your taxes.

If your budget doesn’t account for these irregular bills, you’ll quickly fall off the rails. Brainstorm everything that you pay for — even once-a-year items like holiday travel — and divide this by 12 so that you can set aside money each month in preparation. Don’t forget to also budget for those pesky-but-occasional expenses like late fees, parking tickets, or increases in your bills (like when the price of fuel rises).

 

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