Sticking to a budget is often the hardest part. Even those with the best intentions at the outset frequently fall of the budget wagon. Staying on track is easier if you can avoid these common budgeting mistakes.
1. Using Credit to Make Ends Meet
If you spend more than you earn, you should cut back. Don't use credit cards to pay for items you can't afford. Remember, when you use a credit card, you are borrowing money, and that comes at a cost. Credit cards should only be used when you already have money in your bank account.
2. Not Having a Category for Emergencies
Things happen! Your water heater bursts, you have an unexpected medical bill or your car needs a repair. When you don't have a fully funded emergency fund, life's surprises can really throw you off track financially. Make sure you have an emergency fund equal to 3-6 months of living expenses. Savings are a priority and should definitely have a category in your budget.
3. Not Tracking and Adjusting
Tracking expenses is a major part of the budgeting process. Tracking your expenses will reveal overspending, and help you to stay focused on your goals. Also, things change! You may get a raise, start spending money on something new, or overspend in a certain category. Budgets are meant to be dynamic. Don't be afraid to change it to fit your situation and goals.
4. Borrowing From One Category to Fund Another
If you spend all of the money in one category, don't borrow from another category. For example, don't use money from your grocery fund to pay for a new pair of shoes if you don't have enough saved for them.
5. Forgetting the Fun
A budget is about taking control of your finances so that you can have room in there for the things you want to do. It isn't meant to be so restrictive that you can't do any of the things you enjoy. A budget set up with no fun is a budget that is 100% doomed to fail. A good rule of thumb is to budget between 5% and 10% of your paycheck for fun.
6. Not Communicating With Your Spouse
In order for a budget to work, all family members must communicate and not hide any spending. Communicate as honestly as you can with your partner and your children about budgeting, spending and money.