• Forgetting to account for predictable irregular expenses when making a budget.
A lot of the “unexpected expenses” that
derail our budgets aren’t really all that unexpected when you think
about them. While you can use your emergency fund to cover the costs,
are things like annual vehicle registration fees really emergencies that
just happened out of the blue?
In an ideal world, you’ll plan ahead for
these kinds of expenses and put aside a bit of money each paycheck into a
designated savings account to cover the costs. That way you won’t have
to deplete your emergency fund or go into debt to pay for easily
anticipated fees, repairs and taxes.
To determine how much to put aside each
month, think about the kinds of expenses that you typically have in a
year. You should include costs that you know you will incur, such as
quarterly insurance payments and scheduled maintenance on vehicles and
your home and costs that are likely to occur sooner or later such as
repairs and medical bills.
Add the costs together and divide by the
number of paychecks you get in a year to see how much you should put
aside. For expenses that aren’t guaranteed to come up like medical
bills, use what you’ve spent in the past to help you estimate how much
you’ll need. Even if you can’t do the full amount, even saving half or a
quarter will help get you in a better place financially.
Funds that aren’t used can be rolled over
to the next year until you have a large enough surplus to “trim” off
the excess to use for more lucrative investments.
• Focusing on just the little things because the big things seem to hard to change.
Sometimes, all it takes to get into a
better financial place is trimming a little fat from the budget. You can
save a nice sum by doing things like packing a lunch, cutting cable and
looking for a better cell phone plan. Every penny does add up when it
comes to savings!
However, if the cause of your financial
distress is a mortgage, car loan or student loan repayments that you
can’t afford, it’s unlikely that you’ll be able to achieve long-term
financial stability until you are able to find a real solution for those
debts.
That might mean exploring drastic options
like bankruptcy, foreclosure and repossession. It might mean that
neither spouse gets to stay at home with the children or taking a second
job. Or it could mean having the determination to research every option
and knock on every door until you find a program that can help you.
Do everything in your power to make your
financial situation better, but don’t distract yourself by trying to
bail yourself out in a teacup instead of looking for a lifeboat.
• Being too arrogant
Anyone who spends any time reading
financial blogs and forums has run into *that* guy or gal who thinks
they not only know it all, but that there is absolutely no way, no how
that they could ever be fooled or think irrationally. The truth is, even
though we’re probably not nearly as obnoxious about it, almost all of
us are prone to over-estimating our own abilities and under-estimating
everyone else’s.
This is just human nature and doesn’t
make anyone a bad person (except maybe *that* guy!) but it does mean
that we have to work hard and make a conscious effort to overcome our
own biases and see things objectively.
It’s easy to point fingers and say
“That’s so stupid! How could they not realize that?” when hearing about
other people’s financial mistakes. At the same time, when it comes to
our own, we’re much more likely to blame outside forces and recount the
unique circumstances that led to us getting into a sticky spot.
This isn’t to say that you have to drag
your self esteem into the gutter to make good decisions. The idea is
that we, as humans, are all prone to the same kinds of errors in
thinking and judgment. Being humble enough to accept this makes it more
likely that we will ask questions and think twice before making
decisions.
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