If you are on a budget, congratulations! You are taking an incredibly large step to change your behavior around money. These improved behaviors allow you to achieve goals such as:
– Becoming debt free
– Ending the paycheck-to-paycheck cycle
– Building wealth for financial freedom, retirement or even early retirement
Do you want to be months ahead in your financial freedom journey? Avoid these three budget mistakes that we all tend to make at the start of our journey. You’ll reach your goals, both short-term and long-term, in record time.
1. Not Tracking Your Spending
Guess what? Tracking your spending is just as important as budgeting. Let me tell you what happens when you don’t track your spending.
Major debt. People don’t track their spending and keep spending a little more (or a lot more) than they make each check and charge it to a credit card. When they finally decide to look at the numbers, they realize their overspending has built up over the years to major debt.
The paycheck-to-paycheck cycle also occurs because people don’t track their spending. One week, someone feels like they’re doing well with their money. So the next week, they splurge a little. When the pay cycle ends, they are back where they started.
By tracking your expenses, you are able to see in real time what is happening to your money. You can change the habits in the moment instead of looking back and being able to do nothing about it. Going forward, you will make choices that align with your budget goals.
Track each purchase during your budget cycle using the envelope method – whether with literal cash or with a smart phone app.
2. Not Having a Buffer Fund
Say someone plans to put $300 towards their savings in the next budget cycle. One of their car’s tires pops and they come to find out that they need all new tires because the treads are running dangerously low. To buy 4 new tires, it can cost about $400. Since they only had $300 extra in their budget, they have to take an extra $100 from another category in their budget.
When an unexpected expense comes up, people are unable to stick to their budget and they have to use money allotted for other expenses.
There are ways to deal with having to move money around in your budget once in awhile, but a buffer fund ensures that you stay on track every time. When unexpected events happen, they won’t deter you from your goals.
Your first financial goal as a budgeteer should be to save your buffer fund. Right away, any and every extra dollar should be put towards your buffer fund.
With a fully funded buffer fund in the scenario above, you could have borrowed $100 from your buffer fund and your budget would have carried on as planned.
Build your buffer fund, usually an amount between $400 and $1000. About two weeks worth of income.
– How To Budget: Part I
– How To Budget: Part II
– 3 Steps to Kickstart Your Savings
3. Not Having an Accountability Partner
When you don’t have anyone to hold you accountable to look at your most recent spending habits, you can avoid facing the reality of your spending habits. Some people use social media to hold them accountable. As Tribe on a Budget on Instagram, I am able to share how we do on our budget each week and I notice a lot of other people take to this platform for their financial journey.
While social media is a great tool, it is important to let someone close to you keep you accountable. As a financial coach, I schedule regular meetings with my clients to specifically look at their spending habits. It allows them to look back at their biweekly spending. They are able to adjust their habits and we adjust their budget to align with their goals.
My husband and I are each other’s accountability partner. We both have our own fun money to do what we want with. Yet, a majority of our envelopes are community ones that we communicate about.
Whoever it is, choose someone in your life that you trust with your goals. Tell them what your goals are – during the next pay cycle and beyond – and set up times with them to go over your spending habits.
By tracking your spending, building an emergency fund, and having an accountability partner, you will avoid the 3 budget mistakes that most budgeteers tend to make. You will be months ahead in your financial journey because you will change habits in real time, have a buffer against life to keep you on track, and someone can keep you accountable to your goals.
What do you wish you could tell your younger self about finances?