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Editor’s note: This is a guest post by Donna Reish
WITH THE current state of the economy, many people are beginning to look toward personal budgeting as a means to extending their wealth or even just stay afloat. However, especially for those without much budgeting experience, there are a variety of pitfalls of budgeting sometime cause people to give up altogether. It is important to address these pitfalls to overcome any potential problem that could get in the way of budgeting effectively.
Lack of a clear goal or outcome
If you start budgeting simply because you’re worried about money, your budget will most likely not hold up. After a few weeks or months, your budget will crumble because you will have completely forgotten your motive for beginning the budget in the first place.
Common goals are buying a house, car, or other high-priced commodity. But your goal can be as limited and simple as “having enough money each month to pay rent and bills.” Believe it or not, many people have trouble reaching this goal, most likely because they try to budget without this goal (and the set expense required to meet this goal) in mind.
Allocation is too rigid and unwavering
A budget requires flexibility so that unforeseen changes can be accommodated in your plan. For first-time budgeters, I recommend adding a cushion to your general monthly needs expenditure (rent, bills, food, gas). A good cushion would be adding an additional 30-50% to your monthly needs. This will help cover unexpected costs like car repairs, medical expenses, and gifts.
Budget is too complicated
Try to keep your budget as simple as you can. Only create details to provide context to your expenses when it is necessary. If your budget feels too much like a chore, you’ll inevitably drop it. It’s difficult to determine what amount of complexity is ideal as it varies from person to person, so simply judge this by your own set of standards. If your budget seems too complicated or takes too much time, find ways to group categories and numbers so there’s not too much on the table at once.
Many people will try to find ways to sharpen their expenditures. Please don’t apply these theories to your budget unless you’ve practiced them. Say you spend $500 a month on groceries. You think you can trim it down to $350 by taking out luxury items and finding good deals? Try it next month first. If you succeed, write the new amount of spending into your budget. Simply hoping to hit a goal without any practice or history is a recipe for disaster and overdrafting.
Not utilizing available tools
Finally, many people don’t use nearly the amount of budgeting tools and resources that are available to them. You can make your budget with more than just pencil and paper. Many spreadsheet applications (such as Microsoft Excel) provide various templates to assist in budgeting.What’s more, sites like Mint.com aggregate your income and expenses from multiple accounts, providing a summary and trend analysis of expenses for individuals. Software like Piggy Banks also aggregate your expenses as well as guide your budget with helpful advice.
Donna Reish, a freelancer who blogs about best universities, contributed this guest post. She loves to write education, career, frugal living, finance, health, parenting relating articles. She can be reached via email at: email@example.com.
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