After reading different books on personal finance, I noticed some common mistakes that people make with their budgets. We decided to examine our own budget a while back and we were happy to see we were spending less than what we earn. We were about to set aside some money for savings, but we weren’t optimizing our cash flow like we thought.
Many people don’t make a budget because they think they’re restraining or restricting themselves. That’s not the case. The purpose of budgets is to give you freedom to spend money without feeling guilty. The restriction from budgets is keeping you from acquiring more debt.
Have you ever got money from the ATM machine and threw away the receipt without looking at it? (I did when I was in college and it lead to some surprises later on.) Do you not open bills because you’re afraid to see what the balance is? You can’t help yourself by ignoring the problem
Fix It: Know exactly where you stand in your finances.
Try keeping all the receipts you have from one week. Even for small purchases under $5. At the end of the week, see want you spend on everything. I’d put it on a Excel spread sheet and make a pie chart and a bar chart.
What’s your biggest expense? How much does it cost you? If you’re not into that, use a free service like Mint to help you track your spending.
Make Minimal Payments on Your Credit Cards
The only way I can explain this in words is that you’ve basically decided to sign an agreement with the credit card to make them rich with your money while keeping yourself poor. Check out Bankrate.com’s minimum payment calculator to get proof of what I’m saying.
Fix It: Review your monthly statements to know what you need to pay.
Look at the minimum payments and interest rates with your statements. Double check your bills as it’s very possible that your credit card company can make mistakes on charges.
Paying Late or Skipping Payments
So you may have needed some money to go out and eat and use you the money that was set aside for the credit card or you may have skipped it, not a big deal, right? Credit card companies make a killing when this happens, even if you’re a day late. Most cards will charge you $39 and it’s gets bigger when interest is calculated. By having a poor payment record, you’re also decreasing your FICO score which determines your interest rates for car loans and mortgages. It’s a huge loss for you and a big gain for them.
Fix It: Use Bill Pay
Set up free online bill pay with your bank. Most banks and credit unions offer money and time saving feature. Spend an hour setting this up with your bills, account numbers, due dates, and amounts, and you’ll only need a few minutes a month to keep it up
Use your Credit Card as an Emergency Fund
One great thing about credit cards is that you can use when your car breaks down on the highway and you need a tow and there’s not enough cash in your wallet or an ATM nearby. If you have that cash in savings, you’d immediately pay your card and you’ll have no interest to pay.
Fix It: Start an emergency fund.
A first goal is to save enough to cover monthly bills, then your next goal might be 2-3 months. Have a portion of your paycheck transferred to a high interest savings account. Start small, like 5% of your income, and automate your money to transfer to high yields savings. You’ll be surprised how you won’t notice the little decrease in spending money. If you get comfortable, you can increase the amount.
Your Thoughts on Fixing Budget Mistakes
It pays to shape up on your personal finances. Getting ahead with your finances is possible by looking at the leaks in your budget and fixing them up. You want to create a positive cash flow system that is easy to maintain. I’d love to hear from you about how you manage your money. How about you what common financial mistakes have you made?