Creating and maintaining a household
budget is a powerful tool for achieving financial goals. But these eight budgetary
blunders could tank your best efforts to stay on track.
1. Omitting occasional expenses.
You (hopefully) don’t have to repair your car on a monthly basis, but it’s unrealistic
to pretend it’ll never happen. And just because you don’t know when the next
breakdown will be, that doesn’t mean you should leave an occasional bill from
your mechanic out of your budget. For unpredictable expenses like these, look back
at the cost of prior repairs for an average figure to factor into your budget. As
your car gets older, you may want to adjust that estimate up a bit as you’ll have
a greater chance of more extensive repairs with a “mature” vehicle.
2. Forgetting about small purchases.
That daily cup of joe at the train station may not cost you much, but little things
can add up when they’re repeat offenders. Capture small expenses like these in your
monthly budget. Include things like tips on services and your Sunday morning
bagel run.
3. Ignoring large purchases.
How do you budget for a big two-week summer vacation? It’s important to have a plan
if you don’t want to end up with a gigantic credit card bill as a final
souvenir of your beach getaway. Tackle large expenses like these by dividing the
total cost by 12 and including that amount in a monthly savings budget. That way,
by the time you pack your bathing suit and sunscreen, your fun-times fund will be
able to cover your costs.
4. Relying on memory. When you
review your spending at the end of the month, it’s easy to forget a purchase here
and there. This is why it can be helpful to look back at electronic banking records
to account for every dollar spent. After all, if you don’t accurately align your
spending with your budget, what’s the point of making one to begin with?
5. Leaving no wiggle room. Always
reserve a little cushion in your budget just in case. It’s pretty hard to anticipate
every expense that might come up during the month, so don’t budget down to the penny
– allow some wiggle room in case you’re overly optimistic in your projections.
6. Not paying yourself first.
Don’t let planning for your future become an afterthought. Make it a top priority
each and every month. Participating in your employer-sponsored 401(k) plan is a
great way to make retirement saving automatic. And when by making regular contributions,
you’ll dollar cost average into the market, which means you’ll accrue more shares
when prices are lower. And everyone likes a bargain, right?
7. Being too hard on yourself.
Sticking to a budget takes practice and discipline. You might not hit your target
each and every month, but it’s important not to beat yourself up if that happens.
Try to understand what occurred, make adjustments based on what you learn and get
right back on track. You don’t need to budget perfectly to make a positive impact
on your financial future.
8. Going it alone. Your employer-provided
financial advisor is a fantastic resource. Budgeting can be complicated, and your
advisor can help you sort through the details. Make an appointment to review your
budget or get help setting one up for the first time.
Making — and maintaining — a budget is one of the best things you can do to stay on track for your retirement and other financial goals.
