How to Budget Efficiently – Do It Right from the Beginning!

Most people prefer not to think about their money too much. It’s stressful and we prefer to spend our money instead of counting them. That’s why the majority of people don’t have a detailed budgeting plan in place. Instead, we just roughly estimate our expenses in our head and if we spend less than what we earn, everything will be alright.

That, however, doesn’t work out too well in most cases. Do you really think you can keep an overview of all of your expenses in your head? You can’t even remember what you wanted to buy in the supermarket, that’s why you write a shopping list. For the same reason, you should write down a budget plan, including all your expenses and income streams.

Meanwhile, the internet offers more than enough free budget tools, which can make the process easier. Nevertheless, most people still make mistakes. The following article will explain the most common budgeting mistakes, make sure you avoid them!

Mistake #1: Budget does not include yearly expenses

Many people just budget for their typical ongoing bills like groceries, utilities, gasoline, etc. However, there are also yearly expenses, like car insurance and property taxes. That’s usually quite a big chunk, but these expenses are not as obvious, because you “only” pay once per year and most people budget on a monthly base. Divide your yearly expenses by 12 and you will see that they still eat into your monthly budget big time.

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Mistake #2: Budget does not include a buffer

Nothing is certain but death and taxes, said Benjamin Franklin. Therefore, every budget should include a buffer to make sure unexpected expenses are covered as well. You might have to fix your car or face a medical bill that isn’t covered by your insurance. Use your costs from previous years as a proxy, and adjust them based on your expectations for the coming year.

Mistake #3: Income sources are taken for granted

What is true for your expenses is equally true for your income. Not all your income sources are guaranteed either. Therefore, your budget should also reflect your income risk. If you for example make a side income trading the financial markets, you should keep in mind that you may not have that extra money every month. Keep an overview of all your income sources. If you trade, choose a broker that allows you to make use of modern tools to keep track of your accounts easily.

Mistake #4: Not keeping track properly

A common mistake is not writing down what you spend when and for what. That, however, is the base for a budget. If you don’t know how much you spent, how do you want to estimate your future expenses? Moreover, writing everything down, you may discover further savings potential and you will know at what time of the year you will have to spend more money. Energy costs, for example, might be higher in winter.

Mistake #5: Budget leaves out small but ongoing items

Setting a budget the coffee after lunch may only cost £2.50, but if you drink it every day, it adds up to more than £70 per month. Small but ongoing costs will add up quickly to a substantial amount. For the first few months, you should keep track of all your expenses in order to know how much you really spend.

Having that said, you should just do that for some months. In the long term, don’t write down every single penny you spend. That will only make you stressed and you may give up on your budgeting efforts. Work with great detail during the first months, and you will be able to live within your budget with a reasonable amount of record-keeping afterwards.

Mistake #6: Budget is not adjusted for changes in income/expenses

Both, expenses and income, are not set in stone. Your situation can change, and so should your budget. Budgeting is not a one-time thing, but a constant process. If your get promoted and earn a higher income, or if you face unavoidable new expenses, your budget should reflect the new reality.

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In the end, it’s just money. Don’t stress yourself over it. However, taking budgeting seriously doesn’t require much effort and it will make your life easier, because you will know your limits and don’t have to ask yourself all the time: “Can I really afford this?” – If you have a budget in place, you will know the answer!