All of us have learned it in a hard way that budgeting is a must if we want to survive during the times of crisis. However, while planning for a budget, many of us tend to make certain mistakes which may cost us dearly. Let's take a look at some of the budgeting blunders and how we can avoid them:
1. Avoiding entertainment and fun stuffs: Eliminating recreation totally is a major budgeting blunder which many of us make. One would self destruct oneself if he or she goes for cutting out on all fun stuffs. Any kind of budget should allow for entertainment. However, one should decide as to how much he or she would spend on fun stuffs and entertainment. It's ideal to spend a total of 5% of your household budget on entertainment.
2. Savings: Many of us do not decide as to how much we need to save in every month. Most of us put whatever amount we have in our hand into the savings account. This will not be of much help in the long run. The savings should depend upon our monthly income. The deposits that we make to our savings account should also be consistent. One can go for an automatic payroll deduction in order to save a stipulated sum of money every month. By saving just $100 a month, one could accumulate approximately $6,800 in five years if the interest rate is 5%.
3. Emergency savings: A large number of people are prone to this budgeting blunder - they don't have an emergency fund to fall back upon. Thus, if there is a job loss or medical emergency, the financial ruin starts off immediately for that person. It is ideal to save 3-6 months' worth living expenses in a liquid interest-bearing account. This emergency fund will come handy in case of a sudden financial crisis.
4. Spending more than what you earn: This is another budgeting blunder that should be avoided at any circumstance. One should always remember the eternal rule - "live within your means". It is very important to resist unnecessary spending. This will not only help us in saving money but we'll be able to pay off certain debts which would have been otherwise impossible for us to pay if we had spent the money in buying unnecessary things.
5. Paying minimum on cards: We generally tend to make minimum payments on our cards to ease our financial burden to some extent. However, in the long run, making minimum monthly payments can cost thousands of dollars in interest fees. If you pay off the dues in full, you can use the thousands of dollars paid in fees towards savings or entertainment. So, try and send as much as you can to the credit card company each month and get rid of the late fees.
Various personal budgeting tools are found online which can help you in planning your budget in a better way. You can insert your monthly income in the personal budgeting tool and prepare a monthly budget for yourself.