A healthy budget makes life much easier in many ways. It’s nice to not have to struggle to pay monthly bills or to wonder how you’re going to get groceries this week. It pays to know what the biggest dangers to a healthy budget are.
A healthy budget doesn’t just happen for most people. It’s too easy to make mistakes. Consider these problems and how to deal with them.
Credit cards can be a blessing when times are tight, but they can quickly destroy your budget as well. The money you spend on them has to be paid back somehow, and the sooner, the better. The interest charges add up quickly, making it even more difficult to pay them off.
Whenever you have to build up credit card debt, work hard at getting it paid off. You may have to sacrifice in other areas to make this happen. That’s not easy on a tight budget, but your budget will have problems until that credit card is paid off.
Change your spending habits if you are carrying a balance on your credit cards regularly. If you rely on your credit cards to get by, you need to either reassess what you are spending or start to earn more. Possibly even both. You can also look into getting a lower interest rate on your credit card debt so that it doesn’t pile up so quickly.
Credit cards are good for one thing, although a debit card may be able to perform the same function. They provide a great record of your spending habits. Go over your records every month and see where your money went versus where you meant it to go.
If you use credit cards wisely, they can be beneficial. Some give points or airline miles when you use them. If you can earn these while paying the cards off each month, you can end up ahead. Just make sure that you stay ahead of the bills.
A Lack Of Planning
A lack of a planning is another danger to your budget. It’s easy to overspend if you don’t know where your money is going. Start thinking about the little things and the big things, and seeing what you can do to improve your spending habits.
Perhaps even more important is the ability to know when you cannot afford something. That means cutting back on some of the fun stuff. But it also means not having to worry about how you will afford the things you really need.
Figure out how much money you need for your basic monthly expenses, such as housing, cars, utilities, and groceries. You will also need to consider expenses that may not happen every month but are still important, such as shopping for clothes or gifts.
Plan out your shopping carefully. If you know exactly what you’ll buy when you go to the grocery store, for example, you’ll probably spend less on extras. You also won’t have to go back because you forgot something. Shopping lists can be very helpful that way.
It can be difficult to plan your shopping at some store. I have a dollar store in my area where I never know what I’m going to find, but its produce section makes regular visits worthwhile. Not everything is a dollar there, but the prices are still amazing. I rarely buy non-food items there, although I did buy my nephew’s Christmas present there for $20, with the same toy selling elsewhere for $75-150.
You should also make plans for those times when you will need cash. Don’t go to an ATM that will charge you a fee to get cash if you can help it. Many stores will allow you to get some cash back if you pay with a debit card, or you can make sure to go to a bank that won’t charge you for withdrawals at the ATM.
Don’t treat your cash as money to spend however you like just because it’s harder to track than spending on a credit or debit card. Treat all your money the same, no matter how you spend it.
Not Talking To Your Partner About Money
Communication is key in any relationship, and vital when it comes to having a healthy budget. Your budget will never stay on track if only one of you is following it.
Make sure you both know where the money in your budget is going. This is especially important if either person has spent extra on something.
Set aside time to talk together about your budget. Make it fun if that works for you. Just be sure that it’s enough of a priority that the discussion actually happens on a regular basis.
No Emergency Fund
Another major mistake people do is to make no allowance for emergencies. What will you do if the car needs a major repair or even just a new tire? Try to allow for saving at least a little bit of money every month. Your emergency fund can keep these little problems from turning into major financial crises.
If you don’t have an emergency fund already, you can start one by putting a little aside for one each month. The more you can put aside, the sooner you will have a solid emergency fund so that you don’t have to hit the credit cards when money gets tight.
How much should you have in your emergency fund? That’s up to you. Your first goal should be to have enough to handle a major car repair of at least $1000. Beyond that, try for an emergency fund that will help you keep going even in the event that a job is lost. Having enough money to handle the bills for a few months while a new job is found can greatly decrease the stress of such an event, plus it’s there for other emergencies.
No Room For Fun
Do your best to allow for some fun things in your budget. But if there just isn’t room, think up cheaper alternatives. If you want to see that newly released movie in the theaters, go to the matinee rather than in the evenings. Wait for it to come out on video.
But there are plenty of fun things you can do without getting into your budget. Watch for free admission days at museums. Go hiking. Go to the beach. Many fun things won’t hurt your budget much at all.
Think about the fun things you like to do when planning your budget. Can you make room for an occasional dinner out or going to the movies? What about time out with friends? If you can spare some space in your budget for fun but unnecessary things, you won’t have to feel bad when you do them.
Going Too Cheap
A mistake that can be a bit contrary is to go too cheap. If you buy excessively cheaply made items, in the long run they can cost you more than buying one more expensive but better made item. The right balance will save you both money and frustration.
I like the Sam Vimes “Boots” Theory of Economic Injustice from Discworld by Terry Pratchett:
At the time of Men at Arms, Samuel Vimes earned thirty-eight dollars a month as a Captain of the Watch, plus allowances. A really good pair of leather boots, the sort that would last years and years, cost fifty dollars. This was beyond his pocket and the most he could hope for was an affordable pair of boots costing ten dollars, which might with luck last a year or so before he would need to resort to makeshift cardboard insoles so as to prolong the moment of shelling out another ten dollars.
Therefore over a period of ten years, he might have paid out a hundred dollars on boots, twice as much as the man who could afford fifty dollars up front ten years before. And he would still have wet feet.
While you can’t always avoid going cheap, remember that quality can be more affordable in the long run. Whether you can afford to buy better quality up front is another question. But when you can afford to buy something that will last really well, do so.
Giving In To Temptations
Everyone gets tempted to spend extra money sometimes. There’s a reason why many people joke about how dangerous it is to go to Target, or that the minimum total purchase at Costco is $100. It’s also why you should never go grocery shopping when you’re hungry. It’s too easy to buy more than you need.
One way to help is to make a shopping list before you go and stick to it. I mentioned this back in the planning section, but it bears repeating.
Think about the things that will tempt you to spend extra money, and figure out ways to avoid them. This way, you’ll be ready when they happen. And they will.
Looking At Money Saved As Extra Money
It’s great when you get an amazing deal on something, isn’t it? You planned on spending $50, but it was $10 off. That’s $10 you can spend elsewhere, right?
For one thing, the money saved can be something of an illusion. How often does the item really cost full price?
Stores know you like deals, and so they set them up so that you want to spend more to get the best deal. It’s why you have to buy at least four items for some deals or get a higher dollar amount off your total purchase when you spend more. It’s a trap. You might even end up spending more than you had budgeted for.
When the savings are real, you’re better off putting that money aside rather than spending it as though it’s extra. Don’t use savings as an excuse to splurge, especially if that makes you spend more than you saved.
One of the best things you can do is to know when to buy and when to save. A healthy budget will keep you and your family in better financial condition. Take steps so that you’re ready for emergencies or unplanned but necessary expenses, and you’ll have a better shot at keeping your budget healthy.