Updated: Apr 2
How To Avoid The 3 Most Common Budgeting Mistakes.
Setting a budget should be the cornerstone to anyone’s personal wealth-building. And yet, surprisingly, only 4 out of every 20 people I meet have one, with half of them not doing it right to begin with. To be perfectly honest, our family’s 1st month of trying to set and follow a budget was quite disorganized, to say the least.
When budgeting is done right it creates clarity and understanding of exactly where your money is going and where it needs to go in the near future. It will provide relief of stressing out whether the next month’s bills will be covered or if your child will have enough for college or if you’ve be able to afford that house you’ve been dreaming of or finally getting a second car so you’re not stuck at home with the kids while your spouse goes to work.
Most importantly, it will be the most important tool you use to get what you really want.
Rich people believe “I create my life.” Poor people believe “Life happens to me.” (T. Harv Eker, Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth)
Mistake #1: Planning Without Spouse
When I first started paying attention to money and our weak financial situation I was doing it alone, spending hours every day crunching numbers and looking for the best solution online. Once I asked my husband to be involved, half of the stress of carrying the burden fell off my shoulders.
I created the best predicted list of expenses I could, only to realize that my priorities were a bit different than my husband’s. He wanted to put more money into fantasy sports, which I at the time found to be useless and childish and I wanted to spend more on kids’ clothing and home decor.
Having an open, non-judgmental mind when compromising on your family’s spending is essential, within reason of course. Find a few small things each you and your spouse enjoy spending on and agree on a limit for each. Having a little leeway will prevent that budget from being a negative and dreaded word in your house.
Mistake #2: Not Recording Daily Purchases
Making money tracking a regular habit is key here, no matter how petty or annoying it seems. Not only will this keep your money records accurate but it also helps shape a good money habit which you’ll adapt for life. With a daily practice of looking at how much you are paying for BEFORE you swipe your card at the register, it will eventually become second nature. Within a month or so of implementing this habit you will naturally become more aware of what you’re buying and if it’s really necessary.
Mistake #3: Not Following Through
What lots of people tend to do, and I was guilty of this as well, is that they write a list of their approximate expenses and then just spend whatever they were spending on before. This leads to disappointment, making the budget seem unrealistic and then causing you to give up.
The Solution: How To Create Your Perfect Budget The Easy Way:
1. Write out approximate monthly expenses, including all the categories you can possibly think of. Discuss this with your spouse and avoid the urge to control their preferences. They have a right to a different opinion.
2. Start tracking your spendings. Every single dollar that goes out or in has to be recorded. This process will take 1 to 3 months to complete and to build an accurate picture of where your money is really going and where the hemorrhaging is happening.
3. After you have a much better idea of your spending (surprise! thought you were spending just $300 on groceries, but now see it’s closer to $800), you can now find the money leaks. Money leaks are those unexpected expenses such as random shopping trips, extravagant gifts, unused subscriptions, overpriced insurance policies, and etc. When I say extravagant gifts, I mean that if you’re buying your spouse a $600 iWatch but only have $300 in your emergency fund, don’t complain that you’re broke and blame it on the holiday season (I say this with love, I promise).
4. Stick to it! Creating the perfect budget will take time, at least 1 to 3 months is just the minimum time. By then you will see how it truly works for you, how being aware of your spending and eventually planning your spending will save you money and find extra money you didn’t realize you were wasting.
5. Have a CONSISTENT tracking/budgeting tool. I personally use the Everydollar app, created by Dave Ramsey’s team. I’ve been using it for over 2 years, it’s easy to understand and you and your spouse can both update it from different phones.
6. Set GOALS. What is the budget for? What purpose will it serve for you? Do you want to buy a house? Pay off debt? Or dying to get a new king size bed with a heavenly mattress after adding some members to your growing family? Want to renovate your 90’s style kitchen?
Having a goal, short term rather than long term to start off with, will be that ultimate motivation source. If you find your motivation fading after a certain point, revisit your original goals, wishes, or things/feeling to avoid. This is VERY important. No motivation=no progress.
Budget’s Real Purpose:
Having set up a proper budgeting plan for yourself or your family is just a small part in achieving financial freedom and building wealth. However, it is the most foundational.
Without it, you can be making more money but may be spending it all simultaneously, where the phrase “More money more problems” comes from. It’s simply NOT true. YOU make your money, YOU choose to either waste it or manage and grow it.
Live your life on purpose, with a HIGHER purpose.