We’re in 2022 and creating a budget is one thing.
Sticking to it is a totally different ball game that you’ve probably tried playing and failed at. So you threw caution to the wind and declared that budgeting is just not for you.
Before you completely give up, know that creating a budget and sticking to it is a skill. And as skills go, it takes time and effort to master.
Several personal finance coaches weigh in on some of the common pitfalls that people fall into which end up costing them big time and how to fix them to get you on the fast track to budgeting like a pro.
You lack clear goals
You are less likely to stick to a budget if you do not have a clearly–defined goal.
“You need to have a very intentional and specific goal like, I want to buy a car or house in the next xxx months as opposed to just saying I want to be rich—a statement that means different things to different people,” advises Rebeka Teshome, a certified personal development coach.
She further states that it is only after you have a clearly–defined goal that you will have the discipline to start tracking your habits, and leveraging your skills to monetize as you work towards your set milestone.
You will more likely commit to your budget and be more disciplined in working toward your specific goal.
What to do:
To avoid this budgeting mistake, write down the goals that excite and motivate you and how much you’ll need to save to accomplish them. When you’re tempted to stray from your budget, review your goals for the motivation to stay on course.
Giving up too soon
In the same way it took time to notice the negative effects of your spending habits, it will also take some time to reap the benefits of changing those habits.
Elisabeth Dawson, financial advisor and author of Wealth by Design recommends thinking of budgeting like dieting – you have a big goal, but it takes small steps to get there. You don’t try to lose ten pounds in a week, just like you shouldn’t try to have half your paycheck saved the first month of implementing a new budget.
Whitney Akinyi, a personal and finance coach, agrees adding that while saving is paramount, you can only save effectively if you have a stable source of income. If you’re finding it hard to save, increase your income streams.
What to do:
Remember that budgeting takes time, and some tweaking, to get it right. You can’t be expected to be perfect at anything on the first try.
It is also a commitment to your future. You’re doing this for yourself, so don’t give up on yourself.
Having zero to one source of income
Having one source of income is too close to having none, and that may lead to under-budgeting.
Even when you cut back to live within or below your means, there is only so much you can cut back on.
According to Whitney, under-budgeting in some of your spending categories may leave you with less money than you need to allocate toward your needs. If you are chronically under-budget and then spend more than you intend, you could get discouraged with budgeting altogether.
What to do:
Just as coach Rebeka advised, it is important to leverage your skills to make more than one source of income. In that way, your different incomes will cater to your different needs.
Whitney puts it this way: “Your salary caters for your bills and savings, income X caters for investments, income Y caters for your lifestyle (but it must be on a budget). The key is diversification.
Not accounting for every expense
There are those one-off costs that don’t show up every month like trips, insurance or school fees which if not factored into your budget, you risk having to dip into other budget categories or falling short on other goals.
What to do:
Elle Martinez, founder of the relationship-focused website and podcast Couple Money, opines that since your spending habits will likely change based on different life circumstances, you will need to regularly review and adjust your plan to avoid this budgeting pitfall.
Another way to fix this is to include a fraction of the irregular expense in every month as saving and put that money aside. Then you can pay the expense as and when it falls due without having to dip into other categories. It can take time and practice to anticipate every expense imaginable, but it will be worth it to keep your budget as accurate as possible. You can also start an emergency fund to help cover unexpected expenses.
Your budget is too tight
Just like you cannot diet restrictively or engage in other extreme activities forever, you cannot expect to stick to a hyper-strict budget long term without burning out. Long periods of restriction can be both demotivating and tiring.
After a while, people tend to bend under the pressure of trying to meet perfection. If you remain extremely strict with your spending, you risk going on a spending binge under the pressure.
Also read: NCBA partners with Shelter Afrique to finance properties in 5 counties
What to do:
To combat this common budgeting mistake, be sure to celebrate what you’ve accomplished. Of course, do not over-indulge that it sets you back financially, but you should make room in your budget for ‘play’ money to splurge whenever you make financial progress and reward yourself accordingly. It could be something as simple as buying your favourite ice cream after reaching a saving milestone.
Not writing it down
The Gender Gap and Goal-Setting study among others have shown time and again that writing down your goals cements them in your brain and sets you up for success. A budget is no different. After all, it’s just a monthly set of goals. And it’s impossible to keep track of your budget without some sort of written log. It may seem daunting to write down everything you spend, but it will make setting new budgets each month that much easier. Having a written log of your expenditures will help you keep track of your habits, so you can pinpoint what is and isn’t working for you.
What to do
You can use budgeting apps, excel spreadsheets, or even good old fashioned pen and paper. And while you’re at it, try writing down some actionable goals related to your budget. Maybe you want to cut down on dining out, or you want to put more into savings this month. Writing down your goals, incomes and expenses is also the first step in budgeting in Dave Ramsey’s book, The Total Money Makeover.
Author Rhonda Byrne in the book, The Secret, declares that whatever your small goals are, remember to keep them positive and actionable. Try ‘I will’ statements, such as I will stick to my budget, rather than ‘I should’ statements, such as I should stick to my budget or I’m a failure. See the difference in positive thinking between the two?
Forgetting About Your Family
In an article by Forbes on budgeting mistakes, former registered financial advisor and award-winning author E. Napoletano says that when you share a household, it’s natural that you’ll share a financial life with that person in some regard. It’s easy, however, to forget to talk about a budget given that daily life would keep you both busy. Without frequent conversations about goals and a budget to help you achieve those goals, spending can go awry, and progress can slow.
What to do
Find a way that works for your relationship to talk about money regularly. Maybe it’s a casual meal out where you can share your goals and progress in a relaxed environment. It could be a shared spreadsheet where you and your partner track spending and expenses. The key is to keep a dialogue going and catch potential budget problems before they have a chance to derail your dreams.
Even if you do not agree on every aspect of your budget, a little compromise can go a long way to keeping your budget on track.
