Browsing Category: Budgets and Bills

4 Common Budget Mistakes and How to Fix Them

caution budget problems and fixes

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.

Ignoring What You Spend caution budget problems and fixes

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’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.

The problem is when you don’t have the savings and that emergency expense is growing on your credit card thanks to the interest.

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?

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Proportional Budgeting for Couples

For many couples finding a fair way to split the bills is a major concern. What makes it hard is that it is common for incomes to vary greatly between a couple as different industries, experience, and negotiation skills can create a huge gap. Going 50/50 on bills can be a financial burden on one person. One solution that has worked well for many is proportional budgeting.

What is Proportional Budgeting? 

Basically proportional budgeting is taking one’s income relative to the total and allocating expenses accordingly. Let me show you an example.

Family Income

Let’s say we have a two income family, one is a teacher and working part-time while finishing up a degree. Their take home income may look like this:

  • Person 1: $2500/month
  • Person 2: $1400/month
  • Total Income:  $3900

When they tally up their bills the total comes out to $3100/month. Looking at their income relative to the total we see that:

  • Person 1 brings in 64% of the income.
  • Person 2 brings in 36% of the income.

That means for the joint account, Person 1 deposits $2496 and Person 2 contributes $604. If they had split the bills 50/50, then Person 2 would have nothing leftover each month.

Proportional Budgeting with Our Finances

We feel like proportional deposits are a more fair way to handle the bills for us personally. We’re currently using proportional budgeting to determine how much each of us puts into the joint accounts. It’s been adjusted a bit as our finances have changed.  Originally the deposits were based on the ratio of our income to the family’s total income and were both deposited into joint checking. The rest was used to pay for gasoline and eating out.

We’ve now modified it that my husband’s portion goes towards the joint checking for necessary bills and my portion goes towards paying debts, savings, and investing.

Thoughts on Proportional Budgeting

I’m curious to see how you handle your finances. Do you split the bills or do you use proportional budget?