Budgeting mistakes to avoid

Many of the slips that make it difficult for people to stick to their financial plans can be avoided. 

 Your mind is made up. This time around you are resolute; you are not going to let your money slip away just like that. You are going to keep track of every naira you spend and ensure you implement your budget this time around.

Many people often find themselves in this state of mind at the start of a new month or as pay day approaches. Yet many of them fail to achieve their goal. Before the month is half-spent, they have abandoned their budgets.

Experts say this is largely as a result of poor planning and mistakes made in drawing up a budget and trying to implement it.

Some of the common mistakes, you should note when making a budget are:

Continue reading after the cut....

Having unrealistic expectations

In drawing up a budget, it is important to know the amount of money you are expecting or that will be available to you. However, some people end up listing their needs (and wants) and then thinking about how they will get the money to meet them. By doing so, they tend to overestimate their expectations. While it is okay to be optimistic about income or earnings, when it comes to budgeting, it is important to be precise. This is because once you draw up a budget based on expected earnings of N100, 000, for instance, and you end up with N70, 000 that budget is doomed.

Failure to document expenses

Many people do not keep track of their expenses. They believe they can easily recall expenditure they make at the end of the day or when they have time. It is at the end of the month that they realize their brain is not as powerful as they thought. Surely, trying to recall every single thing you spent money on in a month is impossible. The best way to keep track of your expenses is to document them as they happen. Make a habit of keeping receipt, taking notes. When you go shopping and you discover that the prices of some of the things you bought are higher than it was in your budget, it is important that you note those changes.

According to experts, it is hard if not impossible to properly implement your budget if you do not know where your money is going. If you are too busy in the day to note your expenses, they advise that you find time to do so every night, updating your budget to ensure that it reflects actual expenses you made.

Underestimating prices

Another mistake people make is that they make their budgets based on assumption as against drawing up one based on current prices of items. Because prices of items can fluctuate at short intervals, it is not wise for you to make a budget based on last month’s prices. This is more so when it comes to food prices, especially seasonal food items such as fruits, tomatoes and yams.

To avoid this mistake, experts advise that you try to make it a habit to do market surveys or go window shopping. While you may consider this as time-wasting, the truth is that in the long run it can prevent you from underestimating prices and save your budget. If you make a budget and later discover when you go shopping that you have underestimated the prices, you may end up having no money for important purchases or payments later.

Being too frugal

According to experts, when you are too frugal with your budget, you are likely to become frustrated with it and abandon it all together. This is because it is like a source of deprivation; an item that makes you overly cautious and miserly.Of course, the idea of a budget is to help you keep expenses in check and boost your savings, however, you must take care that it does not choke you. To do that, you have to keep a budget reasonable and give yourself room for a ‘treat’ of some sort.

Planning for the short-term

Budgets are tools of financial planning. They are meant to guide you in the execution of a financial plan which may span years and even decades. This is why it is important that in drawing up your budget you keep the goal in focus. Planning with just a month in focus, may make you lose sight of your goal. Remember, it is just not about surviving financially for one month, it is about taking steps – with each budget, that guides you to your ultimate financial goal. If you have a rather large expenditure to make at some point in the course of the year, it is important that each of your budgets takes that into consideration.

Not saving much

If your budget is not boosting your savings, it is a sign that you are not getting it right. According to experts, just as you budget for your transport to work, so you should make provision for savings in your budgets. They stress that it is wrong to assume that you wouldn’t save whatever is left of your income after you have taken care of your needs. But many people do not take note of this; there is no provision for savings on their budgets. Your budget is expected to include an amount marked as savings. It could be anything from 10 per cent of your income upwards. If you have difficulty keeping to such a plan, you can overcome the challenge by making arrangements for your bank to deduct the money directly from your salary.

Spending more than you earn

This is perhaps the most common mistake people make when it comes to budgeting. Their budget is more than their earnings. Experts say this has to be avoided or else financial freedom will be impossible. The say the right thing to do is to ensure that your budgetis lesser than your income.

Ignoring ‘minor’ details

Many people leave many details out of their budgets in the belief that they are too small. But these little details or expenses that are left out can make you fail in your attempt to implement the budget. This is because when added up, they amount to much. Some people even categorise the cost of recharging their phones in this category, but many people will admit that their phone bill run into thousands at the end of the month – regardless of the fact that they recharge their phones with ‘just’ N200 every now and then. Oh, and that grilled meat that you buy regularly, which is also not in your budget can cost you thousands at the end of the month too. The fact is that no expense is too small to be covered in your budget.

Not planning for emergencies

This is considered one of biggest mistake people make when it comes to budgeting. They have no plan for unforeseen circumstances. They only consider their needs. So, when they fall ill or get involved in an accident or need to make a sudden repair on their car, they become desperate, sometimes, being forced to borrow money.

-Punch

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