Even though it is absolutely necessary to have a budget that reflects your current level of income, no one will ever tell you that sticking to that budget is easy.
In fact, doing so can be very difficult. A lot of people think they have more money than they do, so they engage in behaviors that are destined to lay waste to the budget they set up.
Top Five Budget-Busting Behaviours People Engage Into
Of course, the best way to avoid bad financial behavior is to know what people do to mess up their budget and make it more likely to run out of money before they run out of a month. Here are the five most common budget-busting behaviors people engage in that doom their budget and put them in greater financial peril.
1. They Tend to Spend Every Dollar They Earn
This is easily the most common behavior that causes a budget to blow up. That’s because it’s too easy. They see something they like, they look at their bank balance and see there is enough money, so they pull the trigger and buy the item, with the hope they’ll be able to “make up the money next payday.” If you are buying cool stuff before you pay the bills, you are blowing your budget and possibly putting you on a dangerous path.
2. They Fail to Pay Close Attention to their Bills
Many people on a budget develop a habit of always tossing their bills aside, instead of organizing them in a way that prevents accidents. If you don’t organize your bills, or worse, if you simply toss bills aside and forget about them, you risk breaking your budget by making missing or late bills more likely. This can lead to late fees and other charges, or even a much higher interest rate on their credit cards, loans or even their mortgage. These can blow up a budget very quickly.
3. They Don’t Save Money
If you don’t have any type of savings, even if it’s a relatively small amount, even the smallest sudden expense could throw your budget into a precarious state. It doesn’t take much, but if you can set your budget to include at least a few dollars of savings every week, you can create a cushion capable of absorbing the hit when it comes to emergencies.
4. They Don’t Account for Unplanned Expenses
If your budget doesn’t include a plan for unplanned expenses, then you will not be ready for an emergency, but you will also be surprised when your budget goes south. Even if your budget is tight, you have to build in a little flexibility. Don’t let a flat tire on your car or a bout with the flu send your budget into the abyss.
5. They Don’t Allow for Surprises
Along the same lines, if you have a budget that allows you to deal with a higher-than-normal utility bill or the occasional overage in your normal expenses, you are practically asking your budget to fail. Planning ahead requires planning for the unexpected. That planning doesn’t have to be precise, and it doesn’t have to be a lot of money, but if you don’t do this, your budget is more likely than not to go off the rails.
By now you should know you need a budget, even though a recent survey shows that two-thirds of Americans never actually create one. Also, now you know the most common pitfalls that send many budgets spiraling into disaster.
5 Steps for Creating a Budget
What are the things you can do to create a budget that works to improve your financial situation? Here are the five most common things you can do to create a budget:
1. Review Spending and Income, to Know What You Have Going In
The first thing to do when you decide to make a budget is to conduct a complete inventory and know exactly where you are now. Spend an entire month, if not two or three months, noting every single dime you spend and what you spend it on. Then, assess the status of all of your bank accounts, as well as credit cards, loans, and other debts, to get an accurate picture of how much money is coming in and how much is going out.
2. Consider Your Life Needs and Your Financial Goals
Once you know how much you’re spending, it’s time to decide which spending is important and what isn’t. If you’re stopping on the way to work every morning to get a latte, you’ll have to decide whether or not it fits into your budget.
3. Include Some Fun Money in Your Budget
Your budget doesn’t have to be all work and no play. It is perfectly okay to include a few dollars in your budget for a night out or a couple of movies in. Allow a small portion of your budget for nothing in particular, that you can use for anything you want. Putting an item like this into your budget can actually help you stick to your budget, or at least make it a bit easier. That said, stick to that amount and don’t go over.
4. Allow Some Flexibility in Your Budget
As noted in the first section of this article, sometimes, a bill may go up a little bit, or your car may break down, and you don’t want something like that to blow up your budget, so that you don’t end up running out of money before you run out of the month. Also, you may have to pay some bills that you pay annually, semi-annually or even quarterly, so keep those in mind in your budget.
5. Learn the Power of No
One thing you will discover with a budget is that you will have to say no quite a bit. That means saying no to buying fast food, or going to the movies more than a couple of times per month, eating lunch or dinner out, and many other things. No matter how much you want that gadget you want, you have to know whether you can afford it and whether it will derail the plans that made you create a budget in the first place.
No matter your financial goals, the best way to get there is by adopting a budget and sticking to it, no matter what. Now, you know what you should do to create a budget, and you also know the most common mistakes people make that causes them to bust their budget. Happy budgeting.