So many people make these five budgeting mistakes – are you? Correct them and kiss the money worries goodbye!
1 Not planning at all
in the first place
In September it’s the TV license. In July it’s the car insurance. Other times it might be the water charges, the energy bill and whatnot. I know the feeling of getting that envelope in the post and thinking “Oh no, not again!”
Each and every time, we think “Oh I hadn’t seen that one coming, luckily it’s only once in a while, at least next month I won’t have that kind of unexpected bill.” But the problem is, is there any one month when there isn’t such an expense?
It could be a very financially worthwhile hour to go through your bank statements and bills and receipts for the previous year. You can pinpoint when each bill was due, how much it was, and then you can plan the upcoming year accordingly. No bad surprises, and you can even – gasp! – plan ahead and have the money ready in advance.
Come to think of it, what are other expenses that occur regularly but not monthly? Think haircuts, presents for friends and family members’ birthdays, Christmas of course (of course!), going to the dentist, car maintenance…
Plan these ahead and space them out, and they won’t be taking you unawares.
2. Forgetting to factor fixed payments
into your budget
When you look at your bank balance, you might be delighted that you’ve just been paid and you have those 2000 EUR or GBP sitting prettily in your current account. So much money! You vaguely remember to deduce the rent that’s due tomorrow, and the rest is yours!
You pay this, that and the other, take care of some bills, pay some off your credit card, fill the tank of the car, treat yourself to a little bit of shopping, have a nice lunch. And suddenly before you know it you’re low again. What happened?! Well what happened is that you simply forgot to take direct debits into account: mobile phone, internet and TV, electricity, perhaps gym membership, magazine subscriptions… They all add up.
So go through your last bank statement and add up all the amounts that are automatically debited from your account every month. Then subtract these from your salary and what is left is your actual spending money. Have you often been left with too much month at the end of your money? What a sad thought – life is short enough as it is. A small amount of planning can enable you to enjoy both the month and the money…
3. Not keeping a spending diary
I like to do it regularly, but even if you only do it for a while, say for a month, you’ll see drastic changes.
For example if I asked you how much do you spend on presents: cards, birthday presents, wedding presents, a bottle of wine and flowers for a host, that sort of thing, I’d wager that, like most people, you have no idea. And still, an incredible 10% of the retail market is devoted to gift giving. Don’t ignore those expenses, factor them in.
Keeping a budget can turn your financial situation around for the better. A reader wrote to me recently: by logging her expenses for a month, she immediately saw areas where she could save, and expenses that she could plan for. The following month, instead of being in overdraft as usual, she had £311 left over. She used it to finally take a big chunk out of her credit card, instead of paying the minimum amount like she usually did. What would you do with an “extra” £311? Even better, what would you do with an “extra” £311 if you knew that you could find it every single month?
4. Burying your head in the sand about
upcoming expenses and not spreading expenses
through the year
One word can strike terror into the hearts of many: “Christmas”. Too often late November and December are spent in a frenzy of shopping, leaving a hefty credit card bill in January. It takes the average Irish person two months to financially recover from Christmas. Two months. Two months during which you’ll be paying credit card fees.
Set up a simple savings account that you can withdraw from at your convenience, label it “Christmas” and automate it to take £30 from your current account every month. Twelve months later you have £360, which will surely go a long way towards a relaxed Christmas, white with snow and not white with fear.
You can use the same strategy to plan for your wedding. Being one to practice what I preach, I recently got married and I had been budgeting for the big day and paying for various expenses for the previous six months.
Don’t let your finances control you, take some small action steps to take control of them.
5. Not letting extra money be extra money
This is where my budget has saved me more than once. Every month you might have the same salary, and sometimes a little extra comes in. A birthday gift, a cheque for extra work you did, overtime, a big refund… It’s all too easy for this extra money to disappear in a matter of days if you’re not careful.
Note that the idea here is not to “deny” yourself a nice surprise. No, quite the contrary. Make sure you feel the nice glow of extra money, don’t rob yourself of the feeling of indulgence that could have been yours. And you do that by keeping that amount outside of your regular budget. Then you’re free to use it as you choose, and as you need: do you want to save it? Do you want to bring forward an expense? Do you want to keep it in expectation of that visit to the dentist? Do you want to indulge and make it a day to remember? It’s your choice, but make it a conscious one. Don’t let extra money be mindlessly swallowed up by expenses that should be accounted for in your regular budget.
A version of this article appeard in Candis Magazine, February 2014.
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