Four Common Mistakes People Make When They Try to Budget For The First Time

December 22nd, 2007 • Related • Filed Under • by admin

In a few days, Christmas will be passed and we will be looking forward to the new year. Many of us will make a stark realization that we probably spent more on decorations, presents, and other items that bring Christmas cheer than we probably should have. We find that we aren’t quite were we had been hoping financially, so we decide to buckle down,f ollow a budget, and try to save some more money. Budgetting is a great way to manage your money, but chances are you’ll make a lot of rookie mistakes if you’ve never done it before. If you know what common mistakes people make when they budget are, they’re a lot easier to avoid. Here are 4 problems people tend to run into when they start budgetting for the first time.

Being Overly Restrictive – Most people start budgetting because they don’t have enough money, so they cut everything back to the bone. They take away all of their fun and entertainment out of the budget and have numbers written down that almost no one can live on. For the first two months that you budget, try not to dramatically change your spending habbits unless they’re out of control. Come up with reasonable approximations of what you spend on any given category each month, spend that much and nothing more. After a few months and you’ve got the hang of it, you will then have a good idea of where there’s waste and can make appropriate adjustments to how much you spend.

Failin to Plan for Emergencies – You never know when your car is going to break down, a medical issue will come about, a job loss will occur, or you’ll find out something is wrong with your house. Everyone should have an emergency fund to pay for these types of emergencies. You should work to have at least 3 months of living expenses saved up to take care of these type of things.

Trying to Track Every Last Penny - A lot of people think they’re professional accountants and try to keep track of every last penny and where it goes each month when they start budgeting. Lets face it, it’s unrealistic to try to track every receipt and how much you spend. A great way to keep yourself in check without having to save receipts and keep track of every last purchase you make is to make use of the envelope budgetting system, in which you designate certain a amount of money for specific categories each month, such as groceries and gasoline, and then put that amount of money in those envelopes. You do your spending out of those envelopes and leave you checking account alone except to pay regular monthly bills.

Being Overly Optimistic – A lot of people want to see their budgets succeed and move them in a very positive direction. Many people are too optimistic about how much money they bring in. A person might plan for a big Christmas bonus whether or not they actually receive one or not. You’re only setting yourself up for dissapointment by creating an overly-optimistic and unrealistic budget. Be reasonable about what you expect to earn and spend each month.