Spending less than you earn is a key part of any person’s financial health. In order to do this successfully, many people set a budget – an itemized list of categories, and how much can be spent on them in a month. Unfortunately, not all budgets work out – and there are four main reasons why.Here is a quick breakdown of the four major reasons why budgets fail, along with advice that you can use when making your own budget to avoid these mistakes:
Overestimating Your Income
When creating your budget, the first thing that you need to do is estimate your monthly income. Include anything that you know you will bring home, but make sure that you don’t ‘pad’ your earnings. It’s not typically advised to include bonuses or overtime ear
ning because it’s not guaranteed – this income should just be a pleasant surprise when it happens. Otherwise your budget will suffer if you don’t receive the income.
Rounding Down Your Spending
Once you figure out your income, the next step of creating a budget is allocating your money into categories like ‘living expenses,’ ‘food,’ ‘entertainment,’ etc. Make sure that you don’t shortchange any of these categories. If your grocery expenses average $80 to $100 a week, for example, start by budgeting $400 to $500 for a month. Remember, this can always be adjusted later when you know what you spend.
Also make sure that you don’t fall into the trap of saying that you’ll lower your spending. If you don’t know how much per month to budget for a category, estimate high and adjust later. Also make sure that you stay within your budget instead of ‘borrowing’ money from other categories. For example, don’t borrow from your grocery money for overflow entertainment expenses… that’s a slippery slope!
Forgetting to Account for Occasional Splurges
The occasional splurge is a part of human nature. Once in a while, we need to buy something special for ourselves or our loved ones. Unfortunately, the typical person’s budget isn’t so understanding of the urge to buy something that’s not planned for ahead of time – that’s where your ‘splurge’ category should come in. If you are proactive and set aside a little bit of money each month for a rare ‘splurge’ purchase, it won’t hurt your bank account when it happens once in a while.
Never Tweaking Your Budget
Creating a budget is easy, but making a budget that works can be difficult. What’s even harder is sticking to that budget in order to reap the benefits of solid financial planning. In a perfect world, you should reevaluate your budget every few months to readjust your allocations. If you want the help of a professional financial planner in Boston, the folks at Vargas and Vargas Insurance Agency have got you covered!
If you need help creating or refining your household’s budget, call the Financial Planning professionals here at Vargas and Vargas Insurance Agency. With one quick call to 617-298-0655, you can set up a meeting with a professional to get you and your money on track to success in no time.