Building a budget is much like laying the foundation of your financial plan. You have to make sure that the foundation is strong and well planned. With some common budgeting mistakes, your budget can quickly fall apart and this can have a cascading effect on your financial plans.
Common Budgeting Mistakes
Not Setting Goals
Building a budget is great but it does not add value if there is no clear goal. Your goal can be anything; it can be as simple as knowing your expenses or saving for a vacation. By setting a goal you know what you are aiming for, without a goal your budget can easily turn into a mess that has no meaning. Make sure your whole family is aware of the goal and there is consensus on achieving that goal.
Not Building an Emergency Fund
You may have planned out all your financial needs to perfection but you don’t know when you are going to face that unexpected expense. You may not know when you are going to face that unexpected expense but you can prepare for it. By building an emergency fund you can protect yourself for the unexpected.
Building a rigid Budget
Always build a realistic budget. The success of your budget depends on being able to stick to it and follow through with your plans. If you build a budget that is too rigid you are forcing yourself in a corner, this can’t end well, you will eventually deviate from your budget.
Budgeting requires Teamwork
Keep in mind that you are building a budget. Your budget should be built with input from people in your household. You may not be aware of an expense that has the potential to derail your entire budget. Discuss your budget with the whole household so that there are no surprises.
Review your Budget
An easy mistake when budgeting is thinking that once you have built a budget the work is done. A budget that has worked for one month does not necessarily mean that it will work for the next. Your circumstances may change from month to month and if your budget does not reflect those changes then the budget is useless. Always review your budget, make sure it is still relevant.