Which of the following should not be considered when setting a current budget?
I’ve been working on a budget, why can’t I get it to work? You grab your pad and get to writing, listing out your income, creating categories for your expenses, and come the end of the month you ask yourself why you have no money left. Sometimes budgeting can feel like filling a bucket with a hole at the bottom. Whatever your budgeting may entail, some expenses shouldn’t even make it into your budget calculations. In this article, I’m going to walk you through what NOT to take into account when considering a current budget and how doing the opposite of these mistakes can ultimately help you obtain financial stability.
Overestimating Income
So many people make the mistake of budgeting based on expected income instead of what they earn steadily or consistently. Or maybe you’re anticipating a raise, a bonus or a sizable tax refund, so you build that into your budget. But what if that raise is late, the bonus smaller than expected, or your refund lower than ideal?
I have fallen for this myself. There was one year when I was positive I’d get a big year-end bonus. So I splurged and got a new phone, assuming it would be easy to pay for it once I received the bonus. But, surprise! The company underperformed this quarter, and my bonus came nowhere close to what I’d anticipated. I was forced to deplete my emergency fund, which put me months behind. The lesson? Always budget using your guaranteed income, not projected earnings. And that way, if additional money comes in, it’s a bonus, not a need.
Neglecting Irregular Expenses
Most of us think about our rent, utilities and groceries when we budget, but what about those behind-the-scenes expenses that sneak in every now and then? Annual insurance premiums, car maintenance, holiday shopping and birthdays are all out of your control but can completely destroy a budget if you don’t have a plan to cover them.
A few years ago, I completely overlooked my car registration renewal. The bill arrived, and I had no choice but to pay it, which meant I wouldn’t be able to buy groceries for the month. That experience taught me to budget a little each month for irregular expenses. A great way to handle this? Establish a “sinking fund” for periodic expenses — small, regular payments into a savings account to help cover future costs without a financial hangover.
Neglecting to Track Small Purchases
Ever glanced at your bank statement and thought, Wait, where did all my money go? The small purchases accumulate, often without us being aware of it. I used to buy a $5 coffee every single morning on my way to work, for example. It seemed like nothing at the time, but when I added up the monthly total, I was spending over $150 on coffee — alone! That was money that could have gone into savings or paying off debt.
I started brewing coffee myself, which not only helped my bank account, but also when I was able to dictate what went into my body. Even tracking the tiniest of costs reveals areas you may be able to reduce without doing too big a compromise.
Being Overly Restrictive
When I started budgeting, I cut out all the unnecessary expenses. No dining out, no movies, no fun at all. I believed this was the secret to saving even more money. Guess what happened? Two weeks into it, I buckled and treated myself to an expensive dinner out and went way over budget. The truth is, if your budget is too constricting, you are not going to adhere to it. Instead of cutting out all the fun, set a budget for eating out, hobbies or entertainment. This will keep your budget sustainable and your life enjoyable.
Ignoring Lifestyle Creep
Lifestyle creep or lifestyle inflation is what occurs when your expenses increase in conjunction with your income. You receive a raise, and suddenly, you’re upgrading your car, buying upscale clothes or moving to a pricer apartment.
I slipped into this trap after being promoted. I convinced myself I deserved to live life better, so I began to spend more. Before I turned my head, I was still living paycheck to paycheck but making more money. To mitigate lifestyle creep, act as if you had not received a raise — for a few months at least. Rather than spending the added income, apply it toward savings, investments, or paying off debt.
Not Accounting for Fun
Any budget that comprises no entertainment or leisure activities will never work. I once made a budget that factored out all pleasure. No movies, no eating out, no vacations — nothing. For less than a month I was miserable, and I broke my budget completely. Now I always save just a little for pleasure. The “fun fund” allows me to stick to my budget and have fun doing it.
Overlooking Emergency Savings
Life is unpredictable. So do unexpected medical bills, home repairs and car breakdowns. This lesson taught me one time when I had an unexpected medical bill wiped out my checking account. From then on, I focused on building an emergency fund. Saving something, each month, even at a relatively small level, can make the sting of unexpected expenses a little less severe.
Relying on Memory
Believing you’ll remember all your spending is a recipe for disaster. I always thought I could track my spending in my head until I realized things were getting muddled in my mind and I was seeing strange charges on my account. Nowadays, I track every expense with budgeting apps. This tiny alteration has made a world of difference in my finances and spending.
Setting Unrealistic Goals
Goals to save big are great, but they have to be attainable.
At one point in time I wanted to save 50% of my take home pay but given my expenses that was unrealistic. Of course, with continued failing I adjusted my win-condition to 20% which was low enough to achieve. Realistic goal setting, is the key to success in the long run.
Not Reviewing and Adjusting the Budget
A budget is not a “set it and forget it” tool. Life situations change, and so too should your budget.In fact, I used to keep my original budget as was, which caused inefficiencies. I now check my budget every month and adjust it depending on changes in spending, savings goals or income.
Final Thoughts
This is important because budgeting is not only a way to track numbers; it’s a way to prepare a financial plan that works for you. Avoiding these common budgeting mistakes could help you create a budget that does its job of keeping you on top of your finances without stressing you out. And remember that budgeting is about progress, not perfection. So make tweaks and stick with it, and revel in the financial peace that comes with smart money management! What is one budgeting mistake that you made in the past? Tell me, I’d love to hear your story!