Making a Budget – 3 Things to Avoid

Budgeting process is not an error-free process. When I say this, I am not talking about the typing errors, or the computer errors, or mathematical errors. I am talking about the assumptions that we make and “hope” will come true. These are the very things that will make your budgeting process an absolutely useless activity. These so called “errors” beat the whole purpose of budgeting as they not only make it difficult to stick to the budget, they also cause more harm to your finances than operating without a budget would.

Don’t plan for income which you are not sure of

One the greatest problem that you may come across as you prepare your budget, is the tendency to bury your head in sand – so as to avoid cutting your expenses and live below your means. This means budgeting and “hoping” that money will come from “somewhere.”

So, what happens?

You allocate some non-existent cash to urgent needs and you use the real cash – cash that you can see – on things that aren’t pressing. This is because you know that the urgent things must be done and will be done. When the time comes to execute the urgent needs, you end up borrowing money to finance your needs yet you had so much money which went down the drain.

Don’t fail to save

In many cases, your budgeted expenditure will be more than you income. As your income increases, you find that your expenditure will also increase and then you will start wondering how you could comfortably survive on half your new income. For this reason, it is important that you set aside a certain percentage of your income to savings and investments. This will have two advantages:

You will be sure of having money for a rainy day and,
You will increase your income as you diversify on the different ways of making money.

This will help you reduce the risk that you will be exposing yourself to, as you will not be over relying on one income source.

Don’t fail to prioritize

Setting priorities is perhaps the single most important purpose of budgeting. Otherwise, people would just spend money as needs come by. The extent to which you can set priorities differs that of another person. For this reason, it is important that you set proper priorities on how the income needs to be spent. If you are a parent, how do you balance between the need to buy your child new shoes and buying yourself a new shirt?

When preparing the budget, it is important to keep in mind the fact that the budget is meant to used and not just stored in a computer spreadsheet or in a notebook so that you can just say you are budgeting. Again, the budget that you are creating should have several goals that you intend to achieve and one of them is not to get a written authority to misuse your hard earned cash.

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