If there’s one thing that I dread tackling every year it’s the family budget. Perhaps I avoid it because I hate making tough decisions. Or maybe it’s because I know that I’m not always diligent about watching where our money goes. However, creating a family budget is a necessary evil—and if you do it right and stick to it, it can help keep you organized, on top of your finances and prepared for unforeseen situations down the road. If you’ve been hiding from that spreadsheet, fear no more! Just avoid these five budgeting mistakes and spend this January taking control of your family’s finances:
1. Not budgeting everything
One of the most common and costly budgeting mistakes that people make is not taking irregular but foreseeable expenses into account. These can include yearly fees such as HOA dues, property taxes and charitable donations, but it can also include monthly expenses such as gifts. Birthdays and anniversary dates don’t change and are easy to plan for, yet most people neglect to work them into their budget. However, if you typically spend around $30 per gift and you buy birthday gifts for 10 people throughout the year, you’re failing to budget $300! That’s enough to throw a serious wrench into any budget. Other foreseeable events that people often forget to budget include back-to-school supplies, membership dues to gyms and warehouse clubs, and travel expenses. It’s also important to account for daily incidentals such as that morning coffee you grab every day on your way to work. All of these small expenses can add up quickly, so failing to budget for them may leave you wondering where all your money’s going!
2. Not setting goals
Many people create a family budget simply to keep track of their bills and expenses but fail to take full advantage of what a budget can really do. Maybe your goal is to plan a trip to Disneyland next year or purchase a new car in the next six months, but you don’t really have a plan on how you’re going to do it. Work these goals into your budget! To help keep my goals on track, I keep my budget on an Excel spreadsheet. At the top of the spreadsheet I always keep a list of my goals for the year, as well as a spot for each goal within each month’s budget. Some months I’m able to set aside more towards each goal, such as when winter rolls around and my electricity bill goes down. Other months, when expenses are high, I don’t contribute as much. Either way, working these "extra" items into the budget and keeping a running tally of what I’ve saved and what I plan to save makes these goals much more attainable.
3. Not tracking actual spending
Making a budget is nearly impossible to do if you don’t know exactly where your money is going. After all, a budget shouldn’t just include your regular monthly bills but should encompass all expenses such as entertainment, clothing, eating out and anything else you regularly spend money on. Before you create your yearly budget, spend at least one full month tracking your actual spending. There are numerous ways you can do this, from low-tech techniques such as the good old-fashioned pen and paper approach to utilizing high-tech tools like software and apps. Some of the best-rated apps for monitoring spending include Mint, Saver and Toshl Finance. All three of these apps will keep track of your spending and will allow you to see just how much you actually spend on groceries, entertainment, kids and other categories each month, which makes creating a realistic budget a much easier task.
4. Never adjusting your budget
Many people create a budget but then never revisit it. However, maintaining a budget is a fluid process that should be monitored and adjusted regularly. Perhaps you decided to purchase a new car during the year and now your car payment is $100 more than it used to be. Or maybe you paid off your car and now you don’t have a car payment at all. Without altering expenses that have changed, you fall into the trap of spending extra money unnecessarily—or worse, coming up short. The solution? Simply look over your budget at least once a month to ensure that nothing has changed or to alter anything that has.
5. Not considering savings
When making a budget, most people include all of their monthly bills and daily expenses, but there is one thing that is often overlooked—savings! Many people fail to include savings in their regular budget and just assume that they’ll save whatever they have left over. Unfortunately, without setting a specific budget for savings, many people don’t ever actually save anything at all, or at least not on a regular basis. Without making savings a priority, you may be setting yourself up for a family deficit come any unexpected expenses. Instead, ensure that your monthly budget includes a spot for savings even if you can only afford to set aside a small amount. After all, simply saving $50 a month will yield a tidy savings of $600 by the year’s end!