Budgeting mistakes to avoid
| credits: File copy
| credits: File copy
Many of the slips that make it difficult for people to stick to their financial plans can be avoided, SIMON EJEMBI writes
Your mind is made up. This time around
you are resolute; you are not going to let your money slip away just
like that. You are going to keep track of every naira you spend and
ensure you implement your budget this time around.
Many people often find themselves in
this state of mind at the start of a new month or as pay day approaches.
Yet many of them fail to achieve their goal. Before the month is
half-spent, they have abandoned their budgets.
Experts say this is largely as a result of poor planning and mistakes made in drawing up a budget and trying to implement it.
Some of the common mistakes, you should note when making a budget are:
Having unrealistic expectations
In drawing up a budget, it is important
to know the amount of money you are expecting or that will be available
to you. However, some people end up listing their needs (and wants) and
then thinking about how they will get the money to meet them. By doing
so, they tend to overestimate their expectations. While it is okay to be
optimistic about income or earnings, when it comes to budgeting, it is
important to be precise. This is because once you draw up a budget based
on expected earnings of N100, 000, for instance, and you end up with
N70, 000 that budget is doomed.
Failure to document expenses
Many people do not keep track of their
expenses. They believe they can easily recall expenditure they make at
the end of the day or when they have time. It is at the end of the month
that they realize their brain is not as powerful as they thought.
Surely, trying to recall every single thing you spent money on in a
month is impossible. The best way to keep track of your expenses is to
document them as they happen. Make a habit of keeping receipt, taking
notes. When you go shopping and you discover that the prices of some of
the things you bought are higher than it was in your budget, it is
important that you note those changes.
According to experts, it is hard if not
impossible to properly implement your budget if you do not know where
your money is going. If you are too busy in the day to note your
expenses, they advise that you find time to do so every night, updating
your budget to ensure that it reflects actual expenses you made.
Underestimating prices
Another mistake people make is that they
make their budgets based on assumption as against drawing up one based
on current prices of items. Because prices of items can fluctuate at
short intervals, it is not wise for you to make a budget based on last
month’s prices. This is more so when it comes to food prices, especially
seasonal food items such as fruits, tomatoes and yams.
To avoid this mistake, experts advise
that you try to make it a habit to do market surveys or go window
shopping. While you may consider this as time-wasting, the truth is that
in the long run it can prevent you from underestimating prices and save
your budget. If you make a budget and later discover when you go
shopping that you have underestimated the prices, you may end up having
no money for important purchases or payments later.
Being too frugal
According to experts, when you are too
frugal with your budget, you are likely to become frustrated with it and
abandon it all together. This is because it is like a source of
deprivation; an item that makes you overly cautious and miserly.Of
course, the idea of a budget is to help you keep expenses in check and
boost your savings, however, you must take care that it does not choke
you. To do that, you have to keep a budget reasonable and give yourself
room for a ‘treat’ of some sort.
Planning for the short-term
Budgets are tools of financial planning.
They are meant to guide you in the execution of a financial plan which
may span years and even decades. This is why it is important that in
drawing up your budget you keep the goal in focus. Planning with just a
month in focus, may make you lose sight of your goal. Remember, it is
just not about surviving financially for one month, it is about taking
steps – with each budget, that guides you to your ultimate financial
goal. If you have a rather large expenditure to make at some point in
the course of the year, it is important that each of your budgets takes
that into consideration.
Not saving much
If your budget is not boosting your
savings, it is a sign that you are not getting it right. According to
experts, just as you budget for your transport to work, so you should
make provision for savings in your budgets. They stress that it is wrong
to assume that you wouldn’t save whatever is left of your income after
you have taken care of your needs. But many people do not take note of
this; there is no provision for savings on their budgets. Your budget is
expected to include an amount marked as savings. It could be anything
from 10 per cent of your income upwards. If you have difficulty keeping
to such a plan, you can overcome the challenge by making arrangements
for your bank to deduct the money directly from your salary.
Spending more than you earn
This is perhaps the most common mistake
people make when it comes to budgeting. Their budget is more than their
earnings. Experts say this has to be avoided or else financial freedom
will be impossible. The say the right thing to do is to ensure that your
budgetis lesser than your income.
Ignoring ‘minor’ details
Many people leave many details out of
their budgets in the belief that they are too small. But these little
details or expenses that are left out can make you fail in your attempt
to implement the budget. This is because when added up, they amount to
much. Some people even categorise the cost of recharging their phones in
this category, but many people will admit that their phone bill run
into thousands at the end of the month – regardless of the fact that
they recharge their phones with ‘just’ N200 every now and then. Oh, and
that grilled meat that you buy regularly, which is also not in your
budget can cost you thousands at the end of the month too. The fact is
that no expense is too small to be covered in your budget.
Not planning for emergencies
This is considered one of biggest
mistake people make when it comes to budgeting. They have no plan for
unforeseen circumstances. They only consider their needs. So, when they
fall ill or get involved in an accident or need to make a sudden repair
on their car, they become desperate, sometimes, being forced to borrow
money.
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