UNITED STATES—Managing your money is about more than just increasing income and reducing spending. When it comes to budgeting, you may think about someone pinching every penny, but that couldn’t be further from the truth. Budgeting can give you the freedom to live life on your own terms with the money you do have. It’s important to avoid a few common mistakes.
Not Accounting for Debt
Debt is often a big expense each month, and it’s important to work it into your budget. But don’t stop there. Take some time to figure out how you can manage your debt to reduce how much you are spending each month. Many with student loan debt consider refinancing and consolidation. It’s easy to use these two terms interchangeably, but they are extremely different from each other, and it’s important to choose the right option so you save money instead of losing your protections. The good news is you can learn more by reviewing a guide with more specific information to help you pick the right option.
Not Knowing How Much You Spend Each Month
If you don’t know how much you are spending in different areas each month, it may be time to reevaluate. Creating a budget won’t be very helpful if you are only guessing how much you should allocate to each area. This might lead to under or overestimating the right amount to put in each category, leading to frustration when you can’t stick to it. Even if you want to get things up and running quickly, it’s important to take the time to review how much you have been spending. Looking over previous spending patterns will give you a better idea of how to set things up. You might want to use a spreadsheet to track how much you spent in the past. Then you can figure out if you can reduce spending in any of these areas.
Not Understanding the Difference Between Needs and Wants
It’s common to mix up needs and wants when budgeting for the first time. Wants are non-essential items, such as vacations, entertainment, and going out to eat, no matter how much you may want these things. On the other hand, needs are things you can’t get by without, such as rent and enough food, so you don’t go hungry. Still, just because an item is a want instead of a need doesn’t mean you can’t afford it. It just means you need to start thinking differently about money and be honest about what is really necessary.
Not Giving Yourself Enough Wiggle Room
Even if you carefully budget every penny, something will likely happen to throw your budget off one month. You might find grocery prices have gone up, utilities are more expensive because of weather changes, or you drive more one month than anticipated and use more gas. There are many ways your expenses could change, so give yourself some breathing room to give yourself a bit of flexibility. Just make sure you figure out what happened if your expenses are different than expected in one month.