Just under half of Canadians have a budget that they rely on to track and plan their spending. While this is an increase from previous years, there’s still a problem: some people aren’t budgeting the right way.
What do we mean by that? After all, there isn’t one right way to set and stick to a budget. Could there really be a wrong way to budget?
The answer is yes. In fact, there are several budgeting mistakes that people make that can set them back more than they anticipate.
Read on to learn about the most common budgeting mistakes we see today so you can avoid making them, yourself.
1. Not Learning How to Budget Money at All
People often avoid creating a budget because it stresses them out to dig deep into their finances. Others may think that when you budget, you don’t get to have any fun anymore. The truth is that when you come up with a reasonable budget, you’ll spend smarter and stress less–and there will be room for fun.
2. Guessing Costs Rather Than Assessing Costs
Some costs you probably know off of the top of your head. For example, you probably know how much you pay in rent every month. You may have other fixed bills memorized, too.
However, there’s a good chance that your guesses about how much you spend on things like food, subscriptions, and entertainment are way off. Don’t guess when you can take the time to assess.
3. Budgeting From Paycheck to Paycheck
Do you start your budget over each time you get a paycheck? This isn’t the best approach for a few reasons.
The first is that you probably have a lot of major expenses all at once. For example, many bills and rent payments go out at the beginning of the month. If you’re budgeting from paycheck to paycheck, that first paycheck is going to disappear before you can say, “Who wants to go out this weekend?”
The other is that your paychecks may look a little different from week to week. When you set a budget for the entire month, you are more prepared to build in wiggle room and accommodate any unexpected changes.
4. Leaving Costs Out
Is there anything you’re not accounting for? Maybe you don’t like to tally your receipts throughout the month or set a spending limit on things like eating out.
No, it’s not always fun or glamorous to add up every dollar you spend. However, it’s going to give you a much more realistic idea of where your money is going and what you have left to spend.
5. Not Tracking Monthly Spending
Even if you’ve set a budget for yourself, you should still track monthly spending. Taking a look back at the end of each month will allow you to see how well you’re sticking to your budget. Plus, it will show you new ways that you can shift your spending, whether you’re trying to have more fun, spend a little less, or save for a big purchase.
6. Not Budgeting With Household Members
Another big reason that people avoid budgeting (or let their budget lapse) is because it causes household tension. After all, it’s going to be frustrating if you’re trying to spend wisely and your partner is spending whenever and however they want.
Don’t set a budget without including other household members in the process. (No, this doesn’t have to include your kids or roommates you don’t share expenses with.) Open up a dialogue about what you both think of as financial security and brainstorm ways to create it before committing to a mutual plan.
7. Not Keeping an Emergency Fund
It’s no secret that Canada’s wealthiest households are the ones sitting on huge savings accounts while everyone else is working with a lot less. What does your savings account look like?
Try not to get into the habit of transferring money out of savings and into checking every time you want to make a purchase. Consider your savings account your emergency fund and aim to grow it to at least $5,000 in the next two or three years.
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8. Not Separating Needs From Wants
You may find that money gets tight from time to time, even when you’re working hard on sticking to your budget. In these moments, it may be time to reassess how you’re spending for a bit.
The key here is to make sure that you’re separating your needs (like paying rent or buying groceries) from your wants (like buying the latest video game or heading to the pub). Make sure that you’re covering your needs first before spending on the things you don’t truly need.
9. Not Accounting For Fun Spending
Yes, it is important to try to factor fun spending (like those wants we were talking about) into your budget. Without leaving room for fun, you’ll find that your budget is much harder to abide by.
Start with small steps. Commit to spending no more than $30 on a meal out or $100 a week on new products that aren’t necessities. As you get used to your fun budget, you can make changes as you see fit.
10. Not Taking a Closer Look at Bills
When was the last time you shopped around for service providers? How do you know that you’re getting the best deal for things like energy, internet, or cell service?
About once a year, do some research into the service providers you can take advantage of. Alternatively, get in contact with your own service providers and negotiate lower monthly bills. You may find that you’ve been spending more than you need to.
Avoid the Most Common Budgeting Mistakes in Your Own Budgeting Plans
The most common budgeting mistakes are the ones that are easiest to overlook. Keep revisiting this guide as you check in with and reshape your budget to get the most out of your money.
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