Americans are budgeting more than ever, according to a survey from 2021. Out of the 1,000 Americans polled, 80% said they have a household budget — up 12 whole points from 2019.
That’s great news for the average American’s wallet. But just because more people are budgeting today than they did in the past doesn’t mean they’re using that budget wisely. There’s a good chance you could be making these four deceptively common mistakes.
Mistake #1: Not Preparing for the Unexpected
Let’s say you get sick and need to go to urgent care, or your car breaks down suddenly and requires an expensive part to fix. These unexpected emergencies are challenging to handle if you only ever budget for your usual bills.
If you don’t prepare for the unexpected, you probably handle these urgent medical expenses and repairs with a credit card. Or, if that’s maxed out, you may need to get a loan online.
Not sure how to get a loan online? It’s as easy as opening your browser on your computer or phone and searching something like “where can I get a loan today”? If approved, you can use this emergency loan to cover your expenses until you’re back on your feet.
A budget helps you prepare for the future without needing cash loans — even if you can’t quite predict what’s coming next.
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You can do this by setting aside a little money into an emergency fund or rainy-day savings account. Ultimately, you’ll want to save between three and six months of living expenses.
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Mistake #2: Forgetting about Infrequent Purchases
All too often, people focus on the big entries of their budget. Things like housing costs, savings, groceries, and utilities take top priority simply because they take up a lot of money every month.
But what about sporadic bills and expenses that show up infrequently throughout the year? If you don’t budget for these expenses, you could be in for a shock once it comes time to pay them:
- Holidays, birthdays, and weddings
- Household items and toiletries
- Income and property taxes
- License and registration renewals
Mistake #3: Believing One More Purchase Won’t Make a Difference
When you’re deep in debt, you might feel hopeless about ever digging yourself out of it. Convinced you’ll always be in the hole, you can trick yourself into splurging on extra things you don’t need.
Why not? If you already have a few outstanding emergency loans and owe thousands across several credit cards, what will a $6 latte really do in the grand scheme of things?
The issue is, it’s never just one latte. And like the old saying goes, the small things add up. They’ll pile on more debt that’s subject to interest, which means you’ll owe even more than their upfront cost in the long run.
Mistake #4: Slashing All the Fun Spending
That said, it’s never a good idea to cut out all your fun spending in the name of budgeting. The 50/20/30 Budget — one of the most popular budgeting methods in the world — suggests allocating 30% of your take-home pay for your wants.
Depriving yourself of everything but the necessities might work in short-term to help you sock away savings, but over the long-term, it wears on you. You’ll never be able to do anything fun, and that’s boring! Eventually, you’ll give up and when you do, you can splurge way more than if you had just budgeted for the occasional treat in the first place.
Are You Making Any Mistakes?
If this list sounds familiar, don’t worry — there’s still time to turn it all around. Follow the tips you learned here today to get your spending back on track.