How to Avoid These 6 Personal Budget Pitfalls

How to Avoid These Personal Budget Pitfalls

Budgeting is a money management tool that everybody should incorporate into their routine to keep track of finances – it is absolutely essential to know where you stand with your income at any given time!

It also becomes easier to make wise spending decisions when you have an exact idea of how much money you are bringing in and how much is being spent. But, what if the way you handle your budget actually turns out to be a bad thing?

Maybe the budget you created for yourself is not helping you put as much cash aside as you’d like or maybe you find that you spend more each month than you earn, which could catch up with you real fast.

Learn how to avoid mistakes that could be impacting your budget!

Missing Expenses

Are you putting money into your account regularly and finding that it just isn’t adding up to more?

If you are concerned that there may be a hole in your budget sucking you dry, be sure to take some time each month to review your bank statement and credit card bills in detail for any expenses that are not accounted for.

There may be automatic payments you have set up that are making regular withdrawals from your bank account without your knowledge.

With the convenience of online billing, it is very easy to forget about regular monthly expenses that are a part of your budget.

Don’t panic if money seems to be missing from your account – review your statements carefully each month to help you keep track of your finances.

Unrealistic Cost Cutting

Whether your money is spent responsibly or used for enjoyment purposes, it is important to account for all things in life with your budget.

When you deprive yourself of the opportunity to do the things you love, it could actually hurt your budget in the long run as you might end up binge-spending later on.

To avoid going overboard with your spending habits all at once, give yourself some room in your budget to splurge on a few simple luxuries from time to time.

The whole point of having a budget is to spread your money out responsibly, so you can use what’s left over to enjoy your life!

A good rule of thumb is to follow the 60% budget plan – use 60% of your income to cover your essential expenses, such as rent, groceries, insurance, etc.

The other 40% can be divided into 10% portions amongst your retirement plan, long-term savings, short-term savings, and “free money” to be used for leisure.

Inexact Tracking of Expenses

A common thing many people resort to when budgeting is the “pay yourself first” method, which means they deposit a chunk of their paycheck into their savings and then spend the rest any way they see fit.

Now, this may seem like a great way to be responsible financially, but the fact is that if you do not keep track of how you are spending your leisure money, how will you know when you are making a smart money decision?

You could easily end up overspending if you are not careful enough.

An easy solution for this would be to watch out how you spend your leisure money. Every couple of months, just take a glance at your bank statements to get an idea of where your money is actually going.

Tracking expenses for a week or two works for most people, and it will assist you with making wise spending choices in the long run.

Being Too Detailed in Tracking Expenses

While it may seem wise to track where every penny you earn is spent, it can be a lot of work and end up overwhelming you to the point where you entirely give up on the idea of keeping an eye on your spending habits.

Trying to account for every single cent in your account sounds maddening and can actually be quite unnecessary because you may end up with information that is not vital to your overall budget plan.

Keep it simple by limiting the areas of your budget you keep track of only to those in which you tend to overspend.

For example, if you find that shopping is your weak spot, then set a spending limit each time you to the mall and develop a cash-only rule to curb the risk of major splurges.

Forgetting the One Off Expenses

This happens to the best of us. You’ve finally gotten to a place where you can sleep soundly at night because you know you are financially secure — then all of a sudden, you get an invoice in the mail from a dental procedure you had done a while back.

There is a way to account for this money easily, so when a one-time cost comes up you can take care of it without hurting your set budget!

Just make a list of all your one-time expenses, such as insurance payments, vacation costs, life insurance, etc, and add them all up. Then, divide by 12 and set this amount aside each month.

This way, you are saving money each month in order to prepare for the one-time payment you will have to make. When your payment is due, just use that money to handle it, and you will never have to dip into your savings!

Using the Wrong Budgeting Tools

There are all kinds of popular free and paid budgeting systems out there – some more intricate than others, and they all swear that theirs is the best! With so many choices, how do you know which one is right?

The key here is to find a budgeting tool that works for you. If you use one that is too technical or too complicated for your needs, it could discourage you from putting forth more effort towards managing your money.

Since this is an important skill to master in order to plan for the future, it would best for you to research budgeting tools and try a bunch to see which one suits you best!

Check out this list of online budgeting tools to get started on your search.

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