Quick Fixes for 10 Big Budget-Blowing Mistakes
If you’ve been struggling to find leaks in your budget, look at these top money mistakes … and learn ways to avoid or fix them.
1. Estimating Income and Expenses Instead of Tracking Them
To make a realistic budget, you need to know exactly how much money you have coming in and going out every month. People tend to get the income side right, but often seriously underestimate their expenses.
To accurately measure costs, review at least six months of bills, bank statements, and credit card statements. That will help you spot expenses that don’t occur regularly. It also lets you see how much some payments vary from month to month, so you can calculate an average.
Once you have accurate numbers, use a free budgeting tool such as Kiplinger’s Household Budget Worksheet to build a household budget. You can easily customize online worksheets like this to match your spending. And using them will highlight any categories you overlooked.
2. Using Credit to Spend More Than You Have
Using credit cards to make purchases that you can’t afford is a double-hit to your budget. The best way to avoid this: Every time you use your credit card, set aside the money as if you’d used cash. That way, when the bill comes, the cash will be available to pay the full balance, and you won’t end up paying interest on everyday purchases. This is also a good practice if you are working to maintain or improve your credit score.
3. Ignoring ‘Auto Pilot’ Expenses
Every month, you’re paying for cable, gym membership, and other contract-type expenses without even blinking. But these expenses can be a real drain on your budget, so taking a deeper look makes sense.
Do you have subscriptions to publications you aren’t reading anymore? Are you still paying for a landline even though you only use your mobile phone? Are you still watching cable, or have you switched to Netflix and Hulu? Reconsidering auto-pilot expenses, and getting rid of the ones that no longer fit your life, can free up space in your budget.
4. Keeping Savings and Checking Accounts in the Same Bank
It’s easy for money to flow the wrong way when savings and checking accounts are in the same bank. If transferring money from savings into checking is as simple as a mouse click, it can happen all too often. And using savings to pay regular household bills because you over spent will quickly deplete your nest egg.
What’s more, when you need that money to cover an emergency or to fund a vacation, it won’t be there.
5. Making It Too Easy to Spend Money
One-click check out … Amazon Prime … Apple Pay … Speedpass … all of these effortless payment systems – and there are dozens more – make it so easy to spend money. We don’t think twice about making purchases.
When you’re trying to stay on budget, though, adding a layer of difficulty to your spending makes you less likely to buy things you don’t really need. So, turn off one- click, don’t “store” your credit card information for online accounts, cancel memberships that don’t really benefit you, and so on.
You’ll be surprised how much less you buy when checking out is even a little more of a hassle.
6. Forgetting about Emergencies
It’s hard to budget for unpredictable expenses, but emergencies happen all the time. Your washing machine goes on the fritz, for example, or you need a root canal. If your budget isn’t prepared to handle the unexpected, you could find yourself in financial hot water.
The fix: Include “emergencies” as an expense category in your budget and fund it every month.
7. Keeping Up with Technology Upgrades
Frequent tech upgrades make the latest, greatest versions seem like must-haves. But they’re really not. Anything that was working for you yesterday – your laptop, your smartphone – is just as good today, even if the tech companies say it isn’t.
Sometimes, simply updating software or adding memory can be all the upgrade you need.
8. Not Tailoring a Budget to Your Life
Your budget should reflect your finances and goals, not just follow a cookie-cutter template. For example, if your daily Starbucks run makes life “worth living,” that’s not the expense to cut, no matter what all the experts say.
Maybe you would rather cancel your cable than go a day without your mocha latte. Your budget can and should reflect that priority.
9. Not Considering Income
Budgeters tend to focus on cutting expenses, but it’s sometimes easier to increase income, or at least cash flow.
- Lower tax withholding. According to the IRS, the average federal tax refund received in 2016 was a whopping $2,860! If your last refund was more than $1,000, reducing your withholding taxes may be worth looking at in order to free up some extra cash.
- Renegotiate with vendors. If your bank charges you for checking and ATM usage, ask them to remove those fees. If they won’t budge, move your money to a friendlier bank. If your cable bundle has skyrocketed, ask if signing up for a new contract term would lower your rate.
- Redeem credit card points. You may be able to use them to buy gift cards, to earn savings on product purchases, and even to help pay your bills.
- Sell unwanted electronics. There are several websites that will buy used electronics – even if they’re not in perfect shape – for cash, store credits or gift cards.
10. Failing to Budget for Life Insurance
Life insurance often gets the axe when families are building budgets. That’s mainly because it doesn’t impact everyday life like other household expenses. But consider this: If money is so tight you can’t fit life insurance into your budget, what happens to the family finances if you or your spouse die?
An insurance policy payout can help keep them on sturdy financial ground.
The Bottom Line
You’ll be amazed how much you can save when you plug leaks that are draining your budget. And by fixing or avoiding these 10big mistakes, you’ll have more room in your spending for occasional splurges.
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Mutual of Omaha and its representatives do not provide tax or legal advice. Consult the appropriate professional regarding your particular situation.