Have you started a budget to save money? If so, you’re already on the right track.
Budgeting is a very important part of money management. It helps you create a spending plan that ensures you have enough money for the things you want and need.
If you have a budget but still find that that you are living paycheck to paycheck – not having enough money for your wants and needs – you are probably doing budgeting wrong.
There’s a right way and a wrong way to budget. Want to learn how to budget like a pro and break the paycheck-to-paycheck cycle? Then stop making these crucial budget errors.
1. You Budget to Save Money by the Month
Many people run their budget by the month. They calculate what they will earn in a given month and plan expenses around that. On the surface, this method makes sense. After all, your bills are often charged monthly and many people are paid on a monthly basis.
However, life doesn’t run by the month; actual expenses are continuous. As a result, some months will undoubtedly be more expensive than others. Holiday months, your birthday months, and months where you plan to take a holiday can all cost more than months where you don’t have a lot of activities planned.
Still, your paycheck will likely remain the same. So, if you are budgeting based on the month and considering your monthly pay, there’s a good chance you’ll find yourself coming up short.
Instead, aim to get an idea of your overall spending trends. It can several months or even a year to get a solid understanding of your spending trends, but the end result allows you to better forecast your expenses.
For example, if you are able to determine that you usually spend an extra $1200 in December, you know that you need to set aside $100 a month to cover your December expenses. Once you get an idea of your overall spending trends, you can set aside the appropriate money to cover your months of higher spending throughout the year.
2. You Spend Money You Just Earned
When you budget to save money by the month, you can also fall into the trap of spending money you’ve just earned.
What do we mean by this?
If you get paid on the first, you already have that money allocated for bills and other expenses. By the 15th, all of that money is gone and you’re left with empty pockets, waiting for your next payday.
Budgeting and spending in this manner leaves you living paycheck-to-paycheck, always chasing your tail.
To get out of the habit of spending money you’ve just banked, work to decrease your overall discretionary (or non-essential) spending until you have at least one pay packet’s worth of money saved in your account.
When you’ve achieved this goal, budget to spend that money instead of the money you just earned. Getting into that habit can help you to stop living in accordance with your pay cycle.
You might even forget when your next payday is!
3. You Don’t Use a Budget Tracker
If you’re running your budget based on your memory or through a series of notes, you’re doing it wrong.
Budget-keeping is a deliberate process in which you plan for your expenses and then go back and account for them. This style of accounting produces a side-by-side comparison of your plan versus your actual spending.
Having this detailed tracking and accounting allows you to see where your strengths and shortcomings lie. It also helps you see where you are spending money so you can cut back where necessary.
While you can track your budget on a spreadsheet, there are several apps and programs that help you maintain your budget to save money as well. Some of the most popular budgeting apps for Australia include:
4. You Don’t Account For All Of Your Spending
Another mistake that people make with budgeting is not accounting for all of their expenses and spending.
Many people think that budgeting means only accounting for their bills. This is certainly not the case.
To budget the right way, you need to account for all of your spending. That includes things like shopping, entertainment, restaurants, and fuel. Keeping track of your non-bill related expenses gives you a holistic picture of your spending trends and the info you need to make necessary changes.
5. You Don’t Track Your Credit Card Spending
Do you have a credit card? Do you use your credit card regularly?
If you are not including credit card expenses in your budget accountability, you are missing a portion of your expenses.
Making purchases on your credit card does not mean that they disappear. Don’t get in the habit of hiding expenses for yourself on your credit card.
Also, if you do use your credit card, it’s best to work to pay off your balance monthly. Doing so will help ensure that you are keeping an actual balanced budget to save money and not accumulating unnecessary debt.