3 Budgeting Mistakes and How to Avoid Them [VIDEO]
Hi everyone, personal finance author Stefanie O’Connell from StefanieOconnell.com here revealing three of the top budgeting mistakes and what you can do to help avoid them.
The biggest budgeting mistake is failing to set a budget in the first place.
When you don’t designate specific intentions and targets for your spending, it can be easy to feel like your financial life is happening to you, rather than you being the driver of your financial choices.
So, get specific by creating a concrete spending plan that falls within your means while serving as a road map for affording a lifestyle you love.
Another major budget faux pas is failing to account for irregular expenses.
Rent, food, transportation and other monthly costs are fairly consistent from month to month, and easy to remember when creating your spending plan, but costs that come up quarterly or annually, like homeowners association (HOA) fees or license plate renewals, may throw your spending off course when left unaccounted for.
To help steer clear of major budget surprises, consider the annual cost of your irregular expenses, just as you do the monthly cost of your more fixed expenses.
Then divide those annual costs by 12 to incorporate them into your monthly spending plan. For example, if you spend $1,000 each quarter on HOA fees, your annual cost is $4,000, which means you need to budget around $333 monthly to help cover that cost. This will typically help you avoid any surprises and keep you on track.
The final budgeting mistake that’s far too common is failing to review your spending and adjust your budget accordingly.
I’m guessing your life today looks a lot different than it did five years ago, a year ago, or maybe even a month ago. The fact is our lives are constantly evolving — as such our budgets need to be continually reviewed and updated to help support those changing lifestyle needs and goals.
For example, if you’re anticipating your first child, you’re going to need a plan for accommodating the additional expenses of caring for a dependent within your current means.
If you continue your present spending without assessing the trade-offs you may need to make to afford these new costs, you’re likely to fall into a pattern of spending beyond your means.
So, remember to review and make regular updates to your budget.
A monthly money date where you identify changing needs and reflect on new priorities, incorporating them into your financial plan for the coming month, is a great way to stay accountable to both your present needs and your future goals.
For more tips on how to build a savvy budget that you can stick to, visit allstate.com/blog and follow me @stefanieoconnell.