Your budget is your financial lifeline. It’s your official spending plan that gives you a snapshot of your bills, your lifestyle expenses, and helps you stay in control of your money.
So, of course, your budget needs to be on point if you want to be financially healthy and secure.
But, I get it, sometimes creating your budget is a frustrating process, especially if you are new to this whole budgeting thing. It’s no surprise that when you’re creating your budget for the first time, there are going to be some mistakes that happen.
To make your budget set up easier, let’s talk about common mistakes you should avoid with your budget so that it actually works to serve you better. And doesn’t feel restricting or depriving, because who wants that?
Before we get started, understand that if you’ve already made some of these mistakes, it’s okay. The beauty of a budget is that it’s adjustable, so you can easily update and fix those mistakes now and start seeing better results with your spending plan.
Mistake #1- Not including everything inside of your budget.
It happens more often than you think. And this mistake is one that I personally did when I first started budgeting as well. I would create a budget that included my debt and bills, that’s it. I might have even included food and gas at the time, too.
If you’re currently looking at your budget and it looks similar to what I describe, then you’re probably feeling a little frustrated and not in full control. And that makes total sense, since you’re not accounting for any of your life expenses. Where is your takeout budget, your shopping or coffee budget, or your child’s picture day expenses that you have to pay this month?
How about the car wash you get every month or your bi-weekly nail salon visit? All this needs to be included in your budget, so you can see everything your income is currently paying for. This also allows you to see if you have enough to cover everything, not just bills and debt.
Remember, your budget is a full list of your priorities written out in dollars and cents, so make sure you include every single expense you currently pay for.
And if you’re not sure or can’t remember everything that you normally buy or pay for, check your last bank or credit card statement to help you not only remember what you should include, but to give you a rough estimate of how much you normally pay for that item in a month.
Here’s an easy way to gather your totals from your statement. Highlight each expense type with a different color and add the totals for each color. Then start jotting down those categories inside of your budget along with the totals you paid last month, for now. You can adjust the number based on your income and whether it can cover all of the expenses you have on your new budget.
Your budget needs to reflect your actual life. It needs to be realistic so that it serves you well and helps you take better control of your finances. If it doesn’t currently do this, then you need to fix it.
It took a long time for me to understand how to set up a proper budget, but now, my budget sheet makes it super easy for me to organize all of my expenses. It works so well that I included it in my Budget Planner here.
The budget sheet has everything divided by sections and there is a section for income, bills, debt, savings, lifestyle, and your section totals.
The lifestyle section is where you would add all your variable expenses that you want to include in your month or that pay cycle.
Your section totals help you see if your income can cover all of your expenses. Your goal is to get the total to equal zero, that means your income was divided completely between all sections (including your savings).
You can use any budget planner you want, as long as it has the capability to organize your finances and spending well. My budget planner does the work for you so all you have to do is plug and play! You’ll stay more organized, know where every dollar is going, and have more control.
Mistake #2- You don’t have a buffer line.
Your buffer line is a budget line that helps you have a small financial cushion in case there are bills that come in higher than you expected. This avoids that panic scramble many of us face when we’re trying to figure out where we can get the additional money to cover the expense without taking away money from another needed budget line.
Your buffer line covers you when you need it most and gives you peace of mind that you don’t have to worry if an expense is a little more than you planned. It helps make your budget fail-proof.
You don’t have to put a lot of money, just $100 or $150 dollars (less if you want) and if it’s not used that month, it will roll over to the following month.
Mistake #3- You don’t have an emergency fund.
Your emergency fund is a vital part of your financial health and without it, you’re allowing yourself to be vulnerable when an emergency happens.
Emergencies include job loss, death or illness of a loved one, unexpected car repairs, and so on.
Emergencies are inevitable and they happen when you least expect it. To make it even worse, they’re urgent and require you to pay up almost immediately. If you face an emergency of any kind, you won’t have time to come up with the money to cover it if you didn’t plan ahead.
So what usually happens in these cases? People use debt to cover their emergency. They’ll put the cost on a credit card or apply for a loan to cover the cost. That’s not an ideal situation.
You’re already emotionally and mentally processing the emergency, now you have to figure out where you will financially cover it? That’s a lot of pressure!
So, plan ahead and create an emergency fund that you add to each month until you have at least 6 months of your full living expenses. That way, you’re always covered, whether you’ve lost a job, a loved one fell ill, or any other emergencies come up.
When my mom passed away suddenly, it was devastating. I can’t imagine dealing with her loss and being in the thick of my grief and having to scramble to pay for her funeral expenses or have to cover other costs that weren’t expected. I’m so thankful that I had my financial steps in order and we had an emergency fund. It was one less thing I had to think about and instead I could focus on mourning her loss.
I know that many of us don’t want to think of these things happening to us, but they will happen at one point and you need to be financially covered so you can put your energy and attention to the things that are most important.
If you don’t currently have an emergency fund set, start a separate savings account today and add a line in your budget for it. You can start adding small increments of $25 or $50 until you’re comfortable to add more.
With your emergency fund, you’re covered.
If you want to manage your money without losing your mind, the Budget Planner is a must! It is a game changer for taking control and freeing up money to use for more of the things you love.
You can check out the planner here.
Remember, your budget is a living, breathing document that is meant to reflect your lifestyle. So keep adjusting and tweaking it works well for you. Your financial health depends on it.