Despite how important a budget is to managing your money, it isn’t the most intuitive financial tool to create or use. You could easily make a costly mistake without even realizing it.
To help you catch any errors in your budget, check in with the list below. Here’s what not to do with your spending plan.
1. Using Your Gross Income
When you’re first building a budget, you need to know how much money you have to work with each month. Here’s where a lot of people make their first stumble.
If you use your gross income, your budget will be off kilter from the get-go. Your gross income is your total earnings before you take out taxes and other deductions like health and unemployment insurance.
To create a more accurate budget, you’ll need to use your net income from the very start. This is your take-home pay after taxes and deductions, so it represents the money you actually have to spend.
2. Forgetting Infrequent Purchases
It’s easy to budget for rent, utilities, and groceries — at least, it’s easy to remember to include these major purchases in your budget each month. They take up a huge chunk of your paycheck and are due the same day every month.
A budget that just covers these regular expenses isn’t complete. You’ll be left blindsided when you have to buy more laundry detergent, refill your contact lenses prescription, or take your car in for a tune-up.
Take some time to think about your irregular expenses. It can be challenging, but the payoff is worth it when you wind up having the cash to make these purchases.
3. Forgoing Emergency Savings
Some irregular expenses aren’t as predictable as your car maintenance or toiletries. Sometimes, you’re surprised by a parking ticket, a blown tire, or a chipped tooth.
If you don’t squirrel away some money for these unpredictable expenses every month, you might need a cash advance to boost your budget.
While a financial institution like MoneyKey offers convenient installment loans online even if you have bad credit, an emergency fund would mean you wouldn’t have to borrow at all.
4. Cutting Too Many Expenses
One of the biggest mistakes is believing a budget has to be strict to work. This kind of thinking makes you create a spending plan that doesn’t make room for the fun stuff in life.
If you think you can live without fun, you’re wrong. Eventually, you’ll start to go stir crazy with every single cent going toward essentials, paying off cash advances, and beefing up your savings.
Budgeting is about finding a balance between paying bills and finding joy, so make sure you set aside some cash for something you like — whether that’s a streaming service, online cooking class, or treat from your favorite bakery.
5. Putting it on a Shelf
The most common mistake is forgetting you have a budget. All too often, people make a budget when money’s tight and then never look at it again.
A budget is meant to be your constant financial companion. You should update it any time something changes your income, expenses, or goals.
Did any of these mistakes sound familiar? If you’ve made them in the past, it’s time to revisit your budget. Subtle changes can help strengthen your spending plan and put more money in your pocket.