6 Budgeting Mistakes to Avoid
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6 Budgeting Mistakes to Avoid

By University & State Employees Credit Union (USECU)

6 Budgeting Mistakes to Avoid

Crafting and following a budget is one of the best ways to help make ends meet and help achieve your goals, whether that means paying off student loans or saving for your first home.

"Think of your budget as an action plan for where your money will be distributed," said Margarita Guerra, Vice President of Finance at USE Credit Union. "Intentionally spending and saving money in the right places can help you achieve financial freedom and reach your goals."

When you create your budget, be sure to avoid these common budgeting mistakes:

1. Underestimating Your Monthly Expenses

This is a big one. If you're not being realistic about what you're spending on recurring needs like groceries, clothing, and transportation, you won't have enough to allocate to long-term goals like a house, car, or vacation. You might also get frustrated and want to toss the whole budgeting thing out the window.

First step: be honest with yourself. Look at your actual expenses over the course of a month, and use those numbers as your baseline. As you move forward, you'll be able to identify categories where you can cut back.

2. Budgeting Based on Your Pretax Income

Most people think of their income in terms of their pretax salary or wages, not their actual take-home pay. For example, if you're a single Californian with a salary of $60,000 a year after federal and state income and payroll taxes are withheld, your take-home pay could be something more like $44,000. Plus, many people have additional payroll deductions, like medical insurance, life insurance, 401(k) and FSA/HSA plans. Review the income that's actually hitting your checking account each pay period before you build your budget.

3. Not Budgeting for Emergencies

Things happen. Cars break down, roofs leak, iPhones get lost at sea, and you can't account for every possibility. What you can do is start setting aside money in your budget for an emergency fund, so these unplanned expenses don't cut into your savings goals or put you into debt. Most financial experts say that an emergency fund should total between three and six months of basic living expenses—but it's important to start somewhere.

If you're daunted by the prospect of setting aside a big chunk of your next paycheck, try a ramp-up plan like this 52-week savings challenge. You start by saving just $1 your first week, but by the end of the year, you'll have almost $1,400.

4. Not Tracking Your Expenses

It's one thing to create a budget, and it's another to make your budget work. If you're not recording all your expenses from month to month, you're likely to overspend and fail to meet your goals. There are lots of different systems to help you manage money and track your day-to-day expenses. The key is to find one that works well for your particular lifestyle.

Tracking your expenses can be easy with USECU digital banking. You can use your laptop, tablet, smartphone, or smartwatch to access free money management tools that let you create a personalized budget, categorize expenses, see all your accounts in one place and track your spending in real-time.

5. Not Budgeting for Fun

This may not have the same financial consequences as failing to plan for the un-fun expenses in life, like home repairs and medical bills. However, it can definitely sabotage your budgeting process.

Lots of people think that the key to saving money is to deprive themselves of all entertainment and leisure activities, but this simply isn't a sustainable approach. Not budgeting for fun is likely to make you resent your budget, rather than seeing it as a vehicle for a fulfilled, happy life. A good rule of thumb is to allocate about 10% of your take-home pay to the fun stuff—brunches out with friends, concerts, windsurfing or whatever floats your boat.

6. Not Coordinating with Your Significant Other

Money is one of the top sources of conflict between couples—but it doesn't have to be that way. It can be great to have a teammate in the pursuit of big dreams. When it comes to budgeting household income, it's important that partners set goals together, and then maintain an open and honest dialogue, even if they choose not to hold joint accounts.

One of the biggest budget-busters is when each partner spends down a particular category without communicating. Holding regular "money meetings" and/or regularly discussing planned expenses or individual financial responsibilities can help keep everyone on the same page.

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