My boyfriend and I were driving the other day and I was lamenting to him about just how bare my bank account was. “First my phone bill was due, then I had the down payment on my new car, and then my car insurance overcharged me…it seems like every time I get paid, my entire check goes out the window!”
He chuckled and said “I’ve got two words for you:
While he was making a joke, it was also kind of a wake up call. Managing day to day finances doesn’t have to be so difficult. The problem was, I was making a lot of mistakes with my budgeting and it felt like my hard-earned paycheck was spiraling down the drain.
So I took some time and reevaluated my budgeting. One by one I identified what mistakes I was making, and what I could do to fix them. I’ve seen a difference in one paycheck – my savings account is actually growing this week instead of shrinking!
So here’s twelve budgeting mistakes I know I was making, and you probably are too.
1. Not Knowing Your Take-Home Pay
Here’s a question for you: how much do you make in an hour? A week? A year? Now how much of that do you actually take home? You may make $30,000 in a year, but once taxes are taken and health insurance (if you’re lucky enough to have it) is deducted, you may only be taking home $25,000. That’s a big monthly difference to have to think about.
2. Guessing How Much Your Recurring Expenses Are
This is probably the silliest mistake of them all, only because it’s so easy to fix: just check your last bank account statement! If you think you’re paying $11 for Netflix only to find out that your boyfriend upgraded your package to the $16 one while conveniently “forgetting” to tell you, that’s a $5 difference. And $5 can make all the difference sometimes. I’ll admit this can be difficult for some bills, like electric bills which differ monthly, but some providers offer a way to keep your monthly bill roughly the same; it’s worth checking into.
3. Trying to Use the Same Budget Every Month
In an ideal world, we’d be able to set a budget and stick to it every single month and be comfortable knowing that those expenses won’t change. The reality is that every month is different. Make sure you set some time aside towards the end of each month and adjust your budget for the next, taking into consideration any changing bills or events (like holidays, birthdays, or anniversaries).
4. Not Adding Up The Little Expenses
Guilty, guilty, GUILTY! I am awful about this. I forget how much that $5 weekly Starbucks or $20 for cat food adds up. It’s so easy to think “oh, it’s only a few dollars,” or “I can afford an extra $10 a month for this music service,” and then suddenly your account is absolutely drained because you weren’t paying attention.
5. Never Checking Your Accounts
When you think you have a handle on your budget and forget about all those little expenses adding up, you forget to check your accounts. This is a huge huge huge mistake! Not only could it save you from the embarrassment of having a card decline when “there should be so much on it still”, checking your accounts regularly (daily!) is the best way to catch any fraudulent activity before it gets out of hand.
6. Using the Minimum Payment for Credit Cards
Responsibly using credit cards is a great way to build up your credit. Emphasis on responsibly. That includes making regular payments every month to show the lenders that you are making smart choices on how you use their money. Unfortunately, especially as you’re just getting started, interest rates on these credit cards can be super high – as much as 23% or more. That means your minimum payment could be just covering your interest and not the money you’ve actually borrowed. Making higher payments (and incorporating that into your budget!) ensures that you’re actually paying it off and not wasting money with interest.
7. Not Budgeting for Irregular Expenses
This one goes right along with #3! Irregular expenses can include annual expenses, events and birthdays, doctor’s visits, and more; and it’s just as important to budget in as your regular bills. It’s part of reviewing and analyzing your budget at the end of each month.
8. Forgetting About a Sinking Fund
Picture this: you’re heading out to check the mail. It’s a beautiful Tuesday morning, the sun is shining, and you don’t have a care in the world. You reach in the mailbox and pull out an envelope, and…it’s a bill. Your car registration is due and you don’t have the money to pay it. That’s where a sinking fund comes in! It’s a little bit of money set aside each check for big expenses such as this. Jess of Minimalise With Me has a fantastic post about sinking funds and how to set them up.
9. Assigning Big Expenses to a Paycheck
I am SO guilty of this and it’s an even easier trap to fall into if you aren’t paying a huge recurring expense like rent (or don’t have a sinking fund!). “My car needs tires, so I’ll use this paycheck for that.” Is it worth living on instant noodles for the next two weeks? If it’s not an absolute emergency, that’s going to destroy your budget.
10. Not Having an Emergency Fund
…and if it is an absolute emergency, it shouldn’t ruin your budget anyway! Similar to a sinking fund, an emergency fund is your savings account. Instead of saving towards a goal, however, this fund is strictly for emergencies. Run your two-week-old car over a curb and blow out a tire? That’s what your emergency fund is for.
11. Having Multiple Savings Goals
At first this doesn’t seem like it makes sense. “I have to have multiple goals,” I think to myself all the time. “I need to save for school, to buy a house, for everything!” This one is a struggle, and perhaps having two or three different savings goals is reasonable. But if you have too many, you’ll stretch yourself too thin. If you have $50 to put into savings each check, but you have ten different goals you’re saving for, it’ll take a lot longer to get to those goals than if you only have two for right now. This is where prioritizing your goals is crucial.
12. Not Including Some “Fun Money”
Sure, managing where every last penny goes may get you to your financial goals quicker, but if you don’t have any money set aside to do fun things (like go out to dinner, or buy that shirt you’ve had your eye on), you’re going to be miserable, you’re going to burn out, and you’re going to be so much less likely to stick to that budget. Include a few extra dollars for the movies, or buying that silly throw pillow. Sometimes it’s worth it if it makes you happy.
So how many of these budget mistakes are you making? One? Two? All of them? We’ve all been guilty of them at one point or another, but being aware of your mistakes is the first step to fixing them!
What’s been your biggest budget mistake?