January is the No. 1 month when people launch new financial regimes, and nearly a third of respondents to a GoBankingRate survey said their 2016 goals include “saving more and spending less.”
All sounds great, says budgeting expert, Lauren Greutman. “Many people start off the new year excited about a budget, but quickly fall off the wagon, only to feel defeated,” says Greutman.
Budgeting doesn’t have to be stressful. Know the likely pitfalls, and how to avoid them.
5 budgeting mistakes (and how to avoid them):
1. Fail to set a budget
“Feeling overwhelmed by the time it takes to track expenses and set a budget is one of the main reasons why people don’t do it,” Greutman says. By carving out a chunk of time, you will save yourself money and time throughout the month. “For every 1 hour of planning, you save yourself 4 hours of execution,” Gretuman says.
Do this instead: At the beginning of next month, collect all your expenses and income. Understand exactly where your money comes from, where it goes, and commit to what you will save and cut back on. ”Instead of spending your time throughout the month tracking where you spend your money, make a money plan for the upcoming month, and just follow the plan. It saves so much time and energy,” she says.
2. Create the exact same budget every month
Setting a budget that looks the same every single month is a big budget mistake, since expenses differ depending on holidays, birthdays, vacation time, energy costs during warmer or cooler months, taxes or home or car repairs.
Do this instead: To avoid breaking your budget, plan each month out one at a time at the start of the month, Greutman says.
3. Don’t allow for wiggle room
Making your budget too rigid is something most people do, but then something comes up unexpected and the entire budget falls apart.
Do this instead: “Give yourself some play money every month – it can be as little as $10 or as much as you can afford,” Greutman says. ”This helps you keep the budget on task, keeps your budget successful for that month, and helps maintain motivation.”
4. Rely on credit cards
Credit card statements can be helpful by providing a monthly tracking of exactly what you spend, some even break purchases down by categories. However, too much reliance on your credit card could lead to over-spending your budget.
Do this instead: Switch to a cash-only budget for one month, that way you can only spend what you know you have. Once you have a comfortable control on your spending, you can return to the credit card and use your monthly statement to manage your budget.
5. Quit too soon
Successful budgeting takes a few months of tweaking and practice. In our culture of instant gratification, people want the budget to be perfect the first time. In reality, it takes a few months of tweaking, messing up, and readjusting for the budget to be right and attainable.
Do this instead: Commit to lifelong budgeting, and understand that each family’s finances are a constant evolution as needs, incomes and priorities change.