Following a budget is one of the best things you can do for your finances. With a budget in place, you are more likely to avoid debt, add to your savings, and meet the goals you set for yourself.
But what if your budget does not work for you? What if you keep going over it or do not stick to it? If so, that may be why.
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1. Your budget is not based on actual data
A budget thrown together based on guesses at how your bills look will not do you any good. Rather, it must be accurate for it to work.
Before you give up budgeting, take some time to look through your bank and credit card statements from the past year. It should help you not only identify all your recurring and one-time costs, but also help you estimate exactly what they cost.
2. You keep setting a budget and forget about it
Your cost of living may change over time, e.g. If your rent increases or you switch to another cell phone provider that costs more than your old one. And sometimes your cost of living can change in your favor, e.g. If you pay for your car and no longer have a car loan hanging over your head.
Either way, your budget is something you need to revisit every three to six months, or after major financial changes have occurred (for example, if you are paying off a loan or losing a large expense). Be sure to update your budget accordingly. Otherwise, it may not do you any good.
3. Your budget leaves you no room for extra expenses
You may think that as long as your various expenses do not exceed the amount you take home in your paycheck, you are ready from a budgeting perspective. But it is not so.
You do not need every last dollar you earn for a few reasons. First, if you go that route, you have no money left to add to your savings. If you also spend every penny you bring, you have zero flexibility for emergencies or other unexpected expenses.
Say your good friend is getting engaged and you are invited to a festive dinner you need to bring a gift for. If you do not have an extra $ 50 to work with in your budget, you may need to put this gift on a credit card and pay it off later, while at the same time accruing interest. A better bet is to leave yourself plenty of room in your budget. That way, you can either add the extra cash to your savings or use them to cover unplanned bills that should not really justify an emergency fund, as a gift to a friend.
Following a budget can put you in a good position financially – but only if that budget is realistic and you are able to stick to it. If not, find out why it is and rework this budget to make it work.
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